UROQUEST MEDICAL CORP, 424B1, 1996-10-25

UROQUEST MEDICAL CORP
424B1, 1996-10-25
ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS

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<PAGE> 1
As filed pursuant to Rule 424(b)(1)
Registration No. 333-07277

3,350,000 SHARES

LOGO
Common Stock

The 3,350,000 shares of Common Stock, par value $0.001 per share (the
"Common Stock"), offered hereby (this "Offering") are being offered by UroQuest
Medical Corporation (the "Company"). Prior to this Offering, there has been no
public market for the Common Stock. See "Underwriting" for the factors
considered in determining the initial public offering price.

The Common Stock has been approved for quotation on the Nasdaq National
Market ("Nasdaq") under the symbol "UROQ." Upon completion of this Offering, the
Company's directors, executive officers and entities affiliated with them will,
in the aggregate, beneficially own approximately 56% of the Common Stock.

FOR A DISCUSSION OF CERTAIN RISKS OF AN INVESTMENT IN THE SHARES OF COMMON
STOCK OFFERED HEREBY, SEE "RISK FACTORS" ON PAGES 6-15.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------

<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS* COMPANY+
<S> <C> <C> <C>
Per Share.......................... $6.00 $0.42 $5.58
Total++............................ $20,100,000 $1,407,000 $18,693,000
</TABLE>

- ---------------

* The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."

+ Before deducting expenses of this Offering payable by the Company estimated to
be $600,000.

++ The Company has granted the Underwriters a 30-day option to purchase up to
502,500 additional shares of Common Stock on the same terms per share solely
to cover over-allotments, if any. If such option is exercised in full, the
total price to public will be $23,115,000, the total underwriting discounts
and commissions will be $1,618,050 and the total proceeds to the Company will
be $21,496,950. See "Underwriting."

------------------------

The Common Stock is being offered by the Underwriters as set forth under
"Underwriting" herein. It is expected that the delivery of certificates therefor
will be made at the offices of Dillon, Read & Co. Inc., New York, New York, on
or about October 30, 1996, against payment therefor. The Underwriters include:

DILLON, READ & CO. INC. PRUDENTIAL SECURITIES INCORPORATED

The date of this Prospectus is October 24, 1996

<PAGE> 2

The On-Command Catheter is an investigational device and has not been cleared or
approved by the FDA for commercial sale in the United States. The process of
obtaining FDA clearance or approval may be lengthy, and there can be no
assurance that the On-Command Catheter will be cleared or approved by the FDA.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.

2
<PAGE> 3

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and the Financial Statements and notes thereto appearing elsewhere
in this Prospectus, including the information under "Risk Factors." Except as
set forth in the Financial Statements or as otherwise indicated, all information
in this Prospectus (i) assumes the Underwriters' over-allotment option is not
exercised, (ii) reflects the Company's reincorporation in October 1996 in the
State of Delaware (the "Reincorporation"), (iii) reflects the 1-for-3.5 reverse
stock split of the outstanding shares of Common Stock and Preferred Stock of the
Company and the conversion of all outstanding shares of Non-Voting Common Stock
into Common Stock effected in connection with the Reincorporation, (iv) assumes
the filing of the Company's Restated Certificate of Incorporation, authorizing a
class of 16,000,000 shares of undesignated Preferred Stock, which will be
effective upon the closing of this Offering, (v) gives effect to the conversion
of all outstanding shares of Preferred Stock into Common Stock upon the closing
of this Offering, (vi) assumes the exercise of warrants to purchase a total of
1,428,571 shares of Common Stock by certain of the Company's stockholders upon
the closing of this Offering, and (vii) assumes consummation of the proposed
acquisition of BMT, Inc. upon the closing of this Offering. See "Description of
Capital Stock," "Capitalization," "Underwriting" and "Acquisition of BMT."

This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in such forward-looking statements as a result of certain factors
discussed under "Risk Factors" and elsewhere in this Prospectus. On-Command(R)
is a registered trademark of the Company. This Prospectus also includes
trademarks of companies other than the Company.

THE COMPANY

UroQuest Medical Corporation (the "Company") was formed to design, develop
and market advanced products for the management and diagnosis of both male and
female urological disorders. The Company's principal product, the On-Command
Catheter, is an endourethral (inside the urethra) catheter incorporating a
proprietary anchoring system and a proprietary patient controlled, magnetically
activated valve used to regulate urine flow. The On-Command Catheter is designed
to enable persons with either urinary incontinence or urinary retention to
manage their condition without the restricted mobility, medical complications,
discomfort and embarrassment generally associated with many of the existing
management alternatives, including intermittent, Foley, external and suprapubic
catheters, diapers and absorbents, and penile clamps. Clinical trials of the
On-Command Catheter have demonstrated the utility of the device in managing male
urinary outflow disorders. The results of the clinical trials showed an overall
symptomatic urinary tract infection rate of less than 3% for all device
insertions during the trials. This rate is significantly lower than the rate of
infection generally associated with the use of Foley catheters. See
"Business -- Urinary Incontinence." Of the patients included in the trials,
approximately 90% found the Male On-Command Catheter maintained continence and
was comfortable to wear and easy to use.

Urinary outflow dysfunction, or voiding disorders, affects at least 13
million people in the United States, including approximately three million men
and ten million women. The Company believes the incidence of urinary outflow
dysfunction in other developed countries is also significant. Urinary outflow
dysfunction is a problem that affects a large number of both institutionalized
(nursing home and hospital care) and community-dwelling individuals, and can be
characterized as either incontinence or retention. Urinary incontinence is the
inability to control one's urinary function, leading to frequent involuntary
urine leakage from the bladder. Urinary retention is the inability to
voluntarily and spontaneously empty one's bladder, preventing urine flow even
though the bladder continues to fill. More than 50% of the estimated 1.5 million
nursing home patients have voiding disorders. Additionally, in contrast to the
widely-held notion that voiding disorders are primarily a problem of the
institutionalized elderly, a 1986 National Institute on Aging study indicated
that 30% of the estimated 40 million community-dwelling population between the
ages of 60 to 84 also suffer from some form of urinary outflow dysfunction.

3
<PAGE> 4

The cost associated with the treatment and management of voiding disorders
is estimated to exceed $16 billion annually in the United States alone. Despite
the development of new treatment options, a recent survey conducted by the
National Association for Continence indicated that approximately 56% of
treatments for urinary outflow dysfunction produced no improvement or made the
patients' conditions worse. Therefore, the majority of sufferers must live with
the numerous problems associated with these disorders and seek acceptable
management modalities for their symptoms.

Clinical trials of the Male On-Command Catheter have been conducted at
eight sites in the United States under an Investigational Device Exemption
("IDE") application approved by the United States Food and Drug Administration
(the "FDA"). Through August 31, 1996, 70 patients had received a total of 223
male devices, with indwelling periods ranging from three days to 64 days, with
an average indwelling period of 25 days per device insertion. The longest trial
period on any patient was 32 months, with the patient receiving a total of 30
device insertions. The results, while promising, are preliminary and additional
clinical testing is required before any definitive conclusions can be reached
concerning the general use of the On-Command Catheter. Consequently, the Company
is preparing to conduct a controlled, randomized clinical study under an
approved IDE application at three sites that have received Institutional Review
Board ("IRB") approval. The predicate device to be used in connection with the
study is the Foley catheter. The Company expects to complete the study, which
has a targeted enrollment of 60 male patients, in the first quarter of 1997. An
IDE application for the Female On-Command Catheter was approved in March 1996
and the Company has obtained IRB approval at two investigational sites and is
conducting a non-randomized pilot evaluation prior to initiating a controlled,
randomized study.

The Company expects to initiate clinical evaluation of the Male On-Command
Catheter in Europe pursuant to an arrangement with B. Braun Biotrol S.A.
("Braun"), a Europe-based multinational medical device company. Braun plans to
conduct the evaluation and to prepare the necessary regulatory filings in 16
European countries. The clinical evaluation of the Male On-Command Catheter in
Europe is expected to begin by the end of 1996 at a total of six investigational
sites in France, Germany and Spain.

The Company intends to market the On-Command Catheter directly in the
United States to physicians and their patients while using marketing
collaborations for institutional and international markets. Medical association
estimates indicate that there are approximately 9,000 urologists and uro-
gynecologists in the United States whom the Company expects to address with a
relatively small direct sales force consisting of approximately 20 individuals
by the year 1999. The Company anticipates that the On-Command Catheter will be
marketed internationally through Braun and other marketing partners and
distributors following required clinical testing and necessary regulatory
approval.

In June 1996, the Company entered into a definitive agreement to acquire
BMT, Inc. and its wholly owned subsidiary, Bivona, Inc. (collectively, "BMT").
BMT designs, develops, manufactures and markets a line of proprietary silicone
medical device products as well as provides engineering design, development and
manufacturing services for silicone products on an OEM basis for other medical
device companies. BMT is one of a limited number of specialty manufacturers of
silicone catheters in the United States. BMT has been a contract manufacturer
for the Company since June 1994 and has manufactured approximately 2,100 Male
On-Command Catheters. The acquisition will be effected through a merger of BMT
with and into an acquisition subsidiary of the Company pursuant to which
shareholders of BMT will receive, in the aggregate, a combination of $10 million
cash and 2,500,000 newly issued shares of Common Stock. The acquisition will
enable the Company to control its own production source while providing
necessary capacity and flexibility in the manufacturing process, as well as
expand the Company's limited product line and experience which has focused
primarily on the On-Command Catheter. The product development and production
expertise of BMT is also anticipated to be utilized by the Company to develop
additional On-Command Catheter products and other new devices related to the
management and diagnosis of urological disorders.

4
<PAGE> 5

RISK FACTORS

An investment in the shares of Common Stock offered hereby involves a high
degree of risk, including risks associated with the lack of regulatory approval
and limited clinical data, dependence upon the On-Command Catheter, uncertainty
of market acceptance, limited operating history, history of losses and
expectation of future losses, risks associated with the acquisition of BMT,
government regulation, lack of marketing and sales experience, manufacturing
risks and other factors. Prospective investors should refer to "Risk Factors"
set forth on pages 6 to 15.

The Company will not be able to market the On-Command Catheter in the
United States unless and until it obtains clearance or approval from the FDA.
There can be no assurance that the Company will obtain FDA clearance or approval
for the On-Command Catheter on a timely basis, if at all.

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company..................................... 3,350,000 shares
Common Stock to be outstanding after this Offering...................... 11,818,626 shares(1)
Use of proceeds......................................................... To fund the acquisition of BMT,
clinical trials, marketing and
sales, research and development,
and for working capital and general
corporate purposes
Nasdaq National Market symbol........................................... UROQ
</TABLE>

SUMMARY FINANCIAL DATA

<TABLE>
<CAPTION>
PRO FORMA
ACTUAL AS ADJUSTED(2)(3)
---------------------------------------------------------------------------------- -------------------------
PERIOD FROM SIX MONTHS ENDED SIX MONTHS
INCEPTION YEAR ENDED DECEMBER 31, JUNE 30, YEAR ENDED ENDED JUNE
(APRIL 8, 1992) -------------------------------------- ----------------------- DEC. 31, 30,
TO DEC. 31,1992 1993 1994 1995 1995 1996 1995 1996
--------------- ---------- ----------- ----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Net sales......... $ -- $ 979 $ 2,801 $ -- $ -- $ -- $14,257,413 $ 7,483,367
Cost of sales..... -- 832 2,381 -- -- -- 7,634,708 4,156,655
--------------- ---------- ----------- ----------- ---------- ---------- ----------- -----------
Gross profit...... -- 147 420 -- -- -- 6,622,705 3,326,712
Research and
development..... -- 120,531 431,295 1,106,631 436,879 539,183 2,092,896 1,069,768
General and
administrative... 11,234 156,647 483,399 397,523 202,835 225,016 2,050,720 1,133,131
Sales and
marketing....... -- 38,392 30,257 46,262 3,589 45,787 1,739,143 737,396
Amortization of
goodwill........ -- -- -- -- -- -- 566,800 283,400
--------------- ---------- ----------- ----------- ---------- ---------- ----------- -----------
Operating income
(loss).......... (11,234) (315,423) (944,531) (1,550,416) (643,303) (809,986) 173,146 103,017
Other income
(expense),
net............. -- -- (260,663) 36,669 16,963 (6,848) (278,479) (143,637)
--------------- ---------- ----------- ----------- ---------- ---------- ----------- -----------
Net loss.......... $ (11,234) $ (315,423) $(1,205,194) $(1,513,747) $ (626,340) $ (816,834) $ (105,333) $ (40,620)
================= ============ ============= ============= ============ ============ ============= =============
Pro forma net loss
per share(4).... $(0.36) $(0.18) $(0.01) $(0.00)
============= ============ ============= =============
Shares used in
computing pro
forma net loss
per share(4).... 4,192,549 4,560,519 11,471,120 11,839,090
============= ============ ============= =============
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------------------
PRO FORMA(2) AS ADJUSTED(3)
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<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.................................................................. $ 5,268,543 $12,971,543
Working capital............................................................................ (1,260,916) 16,832,084
Total assets............................................................................... 27,888,539 35,591,539
Long-term debt, excluding current portion.................................................. 2,027,223 2,027,223
Deficit accumulated during development stage............................................... (4,645,432) (4,645,432)
Stockholders' equity....................................................................... 13,624,058 31,717,058
</TABLE>

- ---------------
(1) Excludes 20,935 shares of Common Stock reserved for issuance pursuant to
outstanding warrants and 1,055,674 shares of Common Stock reserved for
issuance pursuant to outstanding stock options as of June 30, 1996. Also
excludes a total of 482,963 shares of Common Stock reserved for future
issuance under the Company's 1994 Stock Option Plan and 1996 Employee Stock
Purchase Plan. See Note 5 of Notes to Consolidated Financial Statements of
UroQuest Medical Corporation, "Management -- Stock Plans" and "Description
of Capital Stock."

(2) Reflects the pro forma combination of the Company and BMT as if the
acquisition of BMT had occurred at the beginning of each of the periods
presented for consolidated statements of operations data and as of June 30,
1996 for consolidated balance sheet data and gives effect to each of the
events that will occur upon or prior to the closing of this Offering.

(3) Adjusted to give effect to the receipt of the net proceeds from the sale of
the 3,350,000 shares of Common Stock offered hereby (at the initial public
offering price of $6.00 per share and after deducting the underwriting
discounts and commissions and estimated offering expenses payable by the
Company).

(4) See Notes to Pro Forma Financial Statements and Note 1 of Notes to
Consolidated Financial Statements of UroQuest Medical Corporation for
information concerning the computation of pro forma net loss per share and
shares used in computing pro forma net loss per share.

5
<PAGE> 6

RISK FACTORS

The following risk factors should be considered carefully in addition to
the other information contained in this Prospectus before purchasing the Common
Stock offered hereby.

LACK OF REGULATORY APPROVAL AND LIMITED CLINICAL DATA

The Company's principal product, the On-Command Catheter, is an
investigational device that has not been cleared or approved by the FDA or
foreign regulatory authorities and will not be available for commercial
distribution in the United States or internationally unless and until such
clearance or approval is obtained. The Male On-Command Catheter is currently in
clinical testing in the United States with respect to single use insertions of
up to 30 days. Clinical data obtained to date is limited. The Company is
preparing to conduct a controlled, randomized clinical study of the Male
On-Command Catheter. There can be no assurance that the FDA will determine that
the data derived from the clinical study will support the safety and efficacy of
the device. Clinical testing of the Female On-Command Catheter has only recently
been initiated. If either the Male or Female On-Command Catheter does not prove
to be safe and effective in clinical testing to the satisfaction of the FDA or
foreign regulatory authorities, the Company will not be able to market or
commercialize the On-Command Catheter in the United States or abroad.
Furthermore, clearance or approval for single use insertions of the On-Command
Catheter, if obtained, does not mean that use of successive device insertions
will be approved. There can be no assurance that either single use or successive
insertion use of the On-Command Catheter will prove to be safe and effective in
the United States or international clinical testing, or that FDA or foreign
regulatory clearance or approval will be obtained on a timely basis, if at all.
In addition, the clinical testing may identify technical, manufacturing, design
or other obstacles that can delay completion of such testing, as was experienced
in early clinical trials of the Male On-Command Catheter. If the On-Command
Catheter does not prove to be safe and effective in clinical testing or if the
Company is otherwise unable to obtain necessary regulatory approval, the
Company's business, financial condition and results of operations will be
materially adversely affected. See "Business -- The On-Command Solution for
Managing Incontinence and Retention, -- Clinical Trials, and -- Government
Regulation."

DEPENDENCE UPON THE ON-COMMAND CATHETER

The Company expects to derive a substantial majority of its future revenues
from sales of the On-Command Catheter. Although the operations of BMT are
expected to be the sole source of revenues in the short-term, the Company's
long-term revenues and future success are substantially dependent upon its
ability to market and commercialize the On-Command Catheter in the United States
and abroad. Although the Company markets a line of proprietary medical device
products through BMT, there can be no assurance that such products will receive
continued market acceptance or generate significant sales. Furthermore, even
though the Company is in the process of developing new products in addition to
the On-Command Catheter, there can be no assurance that such development efforts
will be successful or that any resulting products will achieve market
commercialization. The life cycle of the On-Command Catheter is difficult to
estimate, particularly in light of current and future technological
developments, competition and other factors. The failure of the Company to
successfully commercialize the On-Command Catheter or to realize significant
revenues therefrom would have a material adverse effect on the business,
financial condition and results of operations of the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business -- The On-Command Solution for Managing Incontinence and Retention,
and -- Clinical Trials."

UNCERTAINTY OF MARKET ACCEPTANCE

6
<PAGE> 7

recommendations of the On-Command Catheter by physicians will be essential for
market acceptance of the On-Command Catheter, and there can be no assurance that
any such recommendations will be obtained. Broad use of the On-Command Catheter
will require the training of numerous physicians, and the time required to
complete such training could result in a delay or dampening of market
acceptance. Moreover, health care payers' approval of reimbursement for the
On-Command Catheter will be an important factor in establishing market
acceptance. Patient acceptance of the device will depend on many factors,
including physician recommendations, the degree, rate and severity of potential
complications, the cost and benefits compared to competing products, lifestyle
implications, available reimbursement and other considerations. Failure of the
On-Command Catheter to achieve substantial market acceptance would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Marketing and Sales, and -- Third Party
Reimbursement."

LIMITED OPERATING HISTORY; HISTORY OF LOSSES AND EXPECTATION OF FUTURE LOSSES

The Company has a limited history of operations. Since its inception in
April 1992, the Company has been primarily engaged in research and development
of the On-Command Catheter. The Company has experienced substantial operating
losses since inception and, as of September 30, 1996, had an accumulated deficit
of approximately $4,227,000. The Company expects its operating losses to
continue for at least the next two years as it continues to expend substantial
resources in funding clinical trials in support of regulatory and reimbursement
approvals, expansion of marketing and sales activities, and research and
development. There can be no assurance that the Company will achieve or sustain
profitability in the future. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

RISKS ASSOCIATED WITH BMT ACQUISITION

The acquisition of BMT will result in the existing shareholders of BMT
owning approximately 21.2% of the Company and constitutes the Company's first
acquisition of another business. BMT's operations are significantly different in
many respects from the Company's current operations, and the acquisition may
result in a number of unforeseen difficulties and problems that could have a
material adverse effect on the Company's business, financial condition and
results of operations. The acquisition of BMT will result in approximately $11
million of goodwill being recognized upon consolidation. This goodwill will be
amortized over a 20 year period resulting in an amortization charge of
approximately $567,000 annually. This amortization and other depreciation
charges related to the acquisition, totalling approximately $973,000 annually,
will reduce BMT's earnings and negatively impact the contribution otherwise
expected to be provided by BMT to the Company's consolidated results of
operations. There can be no assurance that the anticipated benefits of the
acquisition will be realized. Moreover, the acquisition could have the effect of
disrupting the current business and operations of BMT by adversely affecting
material relationships with significant customers and others, including
principal suppliers and key employees. In particular, approximately 40% of BMT's
net sales during 1995 and the first half of 1996 were derived from its
manufacture of OEM medical device products. BMT maintains no long-term OEM
customer contracts and, during 1995 and the first half of 1996, BMT derived
approximately 20% of its net sales from one such customer. Although BMT intends
to continue developing its OEM business, there can be no assurance that BMT will
be successful in its efforts or that its OEM customers will react favorably to
the acquisition. The acquisition of BMT could also redirect significant
management attention and other resources that would otherwise be devoted to the
ongoing development of the On-Command Catheter. Accordingly, the acquisition
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Acquisition of BMT," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business -- BMT."

7
<PAGE> 8

GOVERNMENT REGULATION

The Company's products, including the On-Command Catheter, will be subject
to pervasive and continuing regulation by the FDA. Pursuant to the Federal Food,
Drug and Cosmetic Act (the "FDC Act"), the FDA regulates the preclinical and
clinical testing, manufacture, labeling, distribution and promotion of medical
devices in the United States. Prior to commercialization in the United States, a
medical device generally must receive FDA clearance or approval, which can be an
expensive, lengthy and uncertain process. Regulatory agencies in various foreign
countries in which the Company's products may be sold may impose additional or
varying regulatory requirements. Noncompliance with applicable requirements can
result in, among other things, fines, injunctions, civil penalties, recall or
seizure of products, total or partial suspension of production, failure of the
government to grant premarket clearance or approval for devices, withdrawal of
marketing clearances or approvals, and criminal prosecution. The FDA also has
authority to request recall, repair, replacement or refund of the cost of any
device manufactured or distributed by the Company.

Companies desiring to market a new medical device generally must obtain
either a premarket notification clearance under Section 510(k) of the FDC Act
("510(k)") or a premarket approval ("PMA") prior to the introduction of such
medical device into the market. In addition, changes to a medical device that
significantly affect the safety or efficacy of the device are also subject to
FDA review and clearance or approval. Although generally believed to be a
shorter, less costly regulatory path than a PMA, the process of obtaining a
510(k) clearance generally requires the submission of supporting data, which may
include data from clinical trials of the device. The time period required to
assemble and compile this data can be extensive and can extend the regulatory
process for a considerable length of time. The PMA process can take several
years or longer from initial filing and requires the submission of extensive
clinical data and supporting information.

The FDA has approved IDEs for both the Male On-Command Catheter and the
Female On-Command Catheter. The Company has obtained IRB approval and is
conducting non-randomized pilot evaluations of both devices prior to initiating
controlled, randomized studies. There can be no assurance that the FDA will
determine that the data derived from these studies will support the safety and
efficacy of the devices or warrant the continuation of clinical studies.

The Company currently does not expect to submit a 510(k) notification for
the Male On-Command Catheter for single use insertion of up to 30 days until the
first quarter of 1997 or for the Female On-Command Catheter for single use
insertion until mid-1997, at the earliest. There can be no assurance that a
510(k) notification for either the Male On-Command Catheter or Female On-Command
Catheter will be submitted in these time frames, nor can there be any assurance
that clearance will be obtained for single use insertion, or that subsequent
clearance for successive insertion use will be obtained. Any failure to obtain,
or delay in obtaining, such clearances would have a material adverse effect on
the Company's business, financial condition and results of operations. There
also can be no assurance that the FDA will not require a PMA for either the Male
On-Command Catheter or the Female On-Command Catheter. The Company is aware of
at least one instance in which the FDA initially advised the sponsor of a
urological device for women with incontinence that 510(k) clearance would be the
appropriate regulatory path to market but subsequently required the sponsor to
seek PMA approval.

Regulatory approvals, if granted, may include significant limitations on
the indicated uses for which a product may be marketed. FDA enforcement policy
strictly prohibits the marketing of approved medical devices for unapproved
uses. The Company will be required to adhere to applicable FDA regulations
regarding Good Manufacturing Practices ("GMP") and similar regulations in other
countries, which include testing, control, and documentation requirements, and
with Medical Device Reporting ("MDR") requirements. Ongoing compliance with GMP
and other applicable regulatory requirements will be monitored through periodic
inspections by state and federal agencies, including the FDA, and by comparable
agencies in other countries. In addition, changes in existing regulations or

8
<PAGE> 9

adoption of new governmental regulations or policies could prevent or delay
regulatory approval of the Company's products.

Sales of medical devices outside of the United States are subject to
foreign regulatory requirements that vary widely from country to country. The
time necessary to obtain approval for sales in foreign countries may be longer
or shorter than that required for FDA approval, and requirements may differ from
FDA requirements. The Company expects to initiate clinical evaluation of the
Male On-Command Catheter in Europe pursuant to an arrangement with Braun. Braun
will be responsible for management of the evaluation and obtaining regulatory
approval for the On-Command Catheter, and such approval will therefore be
outside the Company's control. Moreover, the success of such evaluation in
Europe will be dependent, in large part, on Braun's capabilities and
performance. Some countries in which the Company intends to sell devices through
distributors (for example, France, Germany and Spain) either do not currently
regulate medical devices such as the On-Command Catheter or have minimal
registration requirements. However, these countries may develop more extensive
regulations in the future that could impact the Company's ability to market the
On-Command Catheter.

There can be no assurance that the Company will be able to obtain 510(k)
clearance or, if required, PMA approval to market the On-Command Catheter or
other products in the United States for their intended uses on a timely basis or
at all, and delays in receipt of or failure to receive such clearances or
approvals, or failure to comply with existing or future regulatory requirements
would have a material adverse effect on the Company's business, financial
condition and results of operations.

BMT, as a developer and manufacturer of Class I and Class II medical
devices, is also subject to all of the foregoing regulatory requirements of the
FDA. BMT is registered with the FDA and is a manufacturer, distributor, initial
importer, repackager and relabeler of medical devices. Among its activities, BMT
markets a range of proprietary and OEM products, most of which were required to
receive 510(k) clearance. BMT has made modifications to one or more of its
cleared proprietary devices that BMT believes do not require the submission of
new 510(k) notices. There can be no assurance, however, that the FDA would agree
with any of BMT's determinations not to submit a new 510(k) notice for any of
these changes or would not require BMT to submit a new 510(k) notice for any of
the changes made to BMT's devices. If the FDA requires BMT to submit a new
510(k) notice for any device modification, BMT may be prohibited from marketing
the modified device until the 510(k) notice is cleared by the FDA. See
"Business -- Clinical Trials, and -- Government Regulation."

LACK OF MARKETING AND SALES EXPERIENCE

To date, the Company has not sold any On-Command Catheter products.
Although the Company intends to market the On-Command Catheter in the United
States through a direct sales force, if and when necessary regulatory approvals
are obtained, the Company currently does not employ any marketing or sales
employees for the On-Command Catheter. In addition, the Company intends to
market the On-Command Catheter internationally through independent foreign
distribution arrangements, none of which are currently in place. There can be no
assurance that the Company can attract and retain its own qualified marketing
and sales personnel, establish acceptable international arrangements or
otherwise design and implement an effective marketing and sales strategy for the
On-Command Catheter. See "Business -- Marketing and Sales."

MANUFACTURING RISKS

Through BMT, the Company has only manufactured the On-Command Catheter in
limited quantities for clinical testing purposes. Although BMT has extensive
experience in manufacturing custom silicone products, including urological
catheters, the Company, including BMT, does not have experience in manufacturing
the On-Command Catheter in commercial quantities. The Company may encounter
difficulties, delays and significant expenses in scaling up production of the
On-Command Catheter, including potential problems involving production yields,
quality control, component supply and shortages of qualified personnel. The
Company may also experience higher than expected

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manufacturing costs that could prevent the Company from selling the On-Command
Catheter at a commercially reasonable price. There can be no assurance that
difficulties or unfavorable costs will not be encountered in mass-production of
the On-Command Catheter and, in such an event, these difficulties or costs could
result in a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Manufacturing."

RELIANCE ON PATENTS AND PROTECTION OF PROPRIETARY TECHNOLOGY

The Company's ability to compete effectively will depend, in part, on its
ability to develop and maintain proprietary aspects of its technology. The
Company holds ten United States patents, eight of which relate to the On-Command
Catheter, and numerous foreign patents, and has five United States patent
applications and various foreign patent applications pending. Through BMT, the
Company holds an additional fifteen United States patents and nine foreign
patents. There can be no assurance that the Company's issued patents, or any
patents which may be issued as a result of the Company's applications, will
offer any degree of protection. Legal standards related to the enforceability,
scope and validity of patents are in transition and are subject to uncertainty
due to broad judicial discretion and evolving case law. Moreover, there can be
no assurance that any of the Company's patents or patent applications will not
be challenged, invalidated or circumvented in the future. In addition, there can
be no assurance that competitors, many of which have substantial resources and
have made significant investments in competing technologies, will not seek to
apply for and obtain patents that may prevent, limit or interfere with the
Company's ability to make, use or sell its products either in the United States
or internationally.

In addition to patents, the Company relies on trade secrets and proprietary
know-how, which it seeks to protect, in part, through proprietary information
agreements with certain of its employees, consultants and other parties. The
Company's proprietary information agreements with employees and consultants
contain standard confidentiality provisions and, in certain instances, require
such individuals to assign to the Company without additional consideration any
inventions conceived or reduced to practice by them while employed or retained
by the Company, subject to customary exceptions. There can be no assurance that
proprietary information agreements with employees, consultants and others will
not be breached, that the Company would have adequate remedies for any breach,
or that the Company's trade secrets will not otherwise become known to or
independently developed by competitors. The Company also seeks to protect its
trademarks through registration. There can be no assurance, however, that
registration of such marks will provide any significant protection. See
"Business -- Patents and Proprietary Rights."

INTENSE COMPETITION AND TECHNOLOGICAL ADVANCES

Competition in the market for treatment and management of urological
disorders is intense and is expected to increase. The Company believes its
principal competition will come from existing incontinence management
modalities, such as adult diapers and absorbents. The market for adult
absorbents is currently dominated by companies such as Kimberly-Clark
Corporation, Procter & Gamble Company and Johnson & Johnson Co. The Company also
expects to face significant competition from other domestic and international
companies that are developing similar and other products and technologies for
the management of incontinence. Most of the Company's competitors and potential
competitors have significantly greater financial, technical, research,
manufacturing, marketing, sales, distribution and other resources than the
Company. There can be no assurance that the Company's competitors will not
succeed in developing or marketing technologies and products that are more
effective or commercially attractive than any which may be offered by the
Company, or that such competitors will not succeed in obtaining regulatory
approval, introducing or commercializing any such products prior to the Company.
Such developments could have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business -- Competition, and -- BMT."

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<PAGE> 11

UNCERTAINTY RELATING TO THIRD-PARTY REIMBURSEMENT

In the United States and in foreign countries, third-party reimbursement is
generally available for medical devices such as intermittent, Foley, external
and suprapubic catheters for the management of urinary outflow dysfunction,
including incontinence and retention. Products such as diapers and absorbents
that are widely used for incontinence management generally do not receive
third-party reimbursement and are paid for by the patient. The Company believes,
based on the availability of third-party reimbursement for certain other medical
devices, that the On-Command Catheter will generally be eligible for coverage by
third-party reimbursement programs. There can be no assurance, however, that
such reimbursement will be available. The Company is unable to determine whether
the On-Command Catheter reimbursement amount, if any, will be sufficient to
cover the cost of the product. If third-party reimbursement is unavailable,
consumers will have to pay for the On-Command Catheter themselves, resulting in
greater relative out-of-pocket costs for the device as compared to surgical
procedures and other management options for which third-party reimbursement is
available. The Company does not expect that third-party reimbursement will be
available, if at all, unless and until FDA and foreign regulatory approval is
received. After such time, if ever, as applicable regulatory approval is
received, third-party reimbursement for the On-Command Catheter will be
dependent upon decisions by the Health Care Financing Administration for
Medicare in the United States and similar authorities abroad, as well as by
private insurers and other payers.

Changes in the availability of third-party reimbursement for the On-Command
Catheter, for products of the Company's competitors or for surgical procedures
may affect the pricing of the On-Command Catheter or the relative cost to the
patient. Regardless of the type of reimbursement system, the Company believes
that physician advocacy of the On-Command Catheter will be required to obtain
reimbursement. There can be no assurance that reimbursement for the Company's
products will be available in the United States or in international markets
under either governmental or private reimbursement systems, or that physicians
will support the On-Command Catheter. Failure to obtain such reimbursement may
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business -- Third-Party Reimbursement."

FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING

The Company's capital requirements depend on numerous factors, including
the extent to which the On-Command Catheter and other products gain market
acceptance, actions relating to regulatory and reimbursement matters, progress
of clinical trials, the effect of competitive products, the cost and effect of
future marketing programs, the resources the Company devotes to manufacturing
and developing its products, the success of BMT's operations, general economic
conditions and various other factors. The timing and amount of such capital
requirements cannot adequately be predicted. Consequently, although the Company
believes that the net proceeds from this Offering, together with existing
borrowings and cash anticipated to be generated from BMT's operations, will
provide adequate funding for its capital requirements in the foreseeable future,
there can be no assurance that the Company will not require additional funding
or that such additional funding, if needed, will be available on terms
satisfactory to the Company, if at all. Any additional equity financing may be
dilutive to stockholders, and debt financing, if available, may involve
significant restrictive covenants. Failure to raise capital when needed could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Use of Proceeds" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."

DEPENDENCE UPON KEY EMPLOYEES

The Company is dependent upon a number of key management and technical
personnel. The loss of the services of one or more key employees would have a
material adverse effect on the Company. The Company's ability to manage its
transition to commercial-scale operations, and hence its success, will depend in
large part on the efforts of these individuals. The Company's success will also
depend on its ability to attract and retain additional highly qualified
management and technical personnel. The

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<PAGE> 12

Company faces intense competition for qualified personnel, and there can be no
assurance that the Company will be able to attract and retain such personnel.
See "Business -- Employees" and "Management."

INTELLECTUAL PROPERTY LITIGATION RISKS

The medical device industry has been characterized by extensive litigation
regarding patents and other intellectual property rights, and companies in the
medical device industry have employed intellectual property litigation to gain a
competitive advantage. The Company is aware of patents held by other
participants in the urological disorder management market, and there can be no
assurance that the Company will not in the future become subject to patent
infringement claims and litigation or interference proceedings before the United
States Patent and Trademark Office (the "PTO"). The defense and prosecution of
intellectual property suits, PTO interference proceedings and related legal and
administrative proceedings are both costly and time consuming. Litigation may be
necessary to enforce patents issued to the Company, to protect trade secrets or
know-how owned by the Company or to determine the enforceability, scope and
validity of the proprietary rights of others.

Any litigation or interference proceedings would result in substantial
expense to the Company and significant diversion of attention by the Company's
technical and management personnel. An adverse determination in litigation or
interference proceedings to which the Company may become a party could subject
the Company to significant liabilities to third parties or require the Company
to seek licenses from third parties. Although patent and intellectual property
disputes in the medical device area have often been settled through licensing or
similar arrangements, costs associated with such arrangements may be substantial
and could include ongoing royalties. Furthermore, there can be no assurance that
necessary licenses would be available to the Company on satisfactory terms or at
all. Accordingly, an adverse determination in a judicial or administrative
proceeding or failure to obtain necessary licenses could prevent the Company
from manufacturing and selling its products, which would have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Patents and Proprietary Rights."

INTERNATIONAL SALES RISKS

The Company plans to sell the On-Command Catheter and other products both
in the United States and in foreign markets. Any international sales are
expected to be made through independent foreign distributors and involve a
number of inherent risks. Consequently, there can be no assurance that the
Company will be able to achieve significant sales of the On-Command Catheter or
other products in any foreign market. International sales may be adversely
affected by the imposition of government controls, export license requirements,
political instability, trade restrictions, changes in tariffs, distributor
difficulties, communications problems, fluctuations in foreign currency rates,
foreign competition and other factors. Any one or more of these factors could
limit the Company's international sales and have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business -- Marketing and Sales."

PRODUCT LIABILITY RISK; PRODUCT RECALL RISK; NO INSURANCE COVERAGE

The manufacture and sale of medical devices entails significant product
liability and recall risks. A recent United States Supreme Court decision held
that product liability may exist despite FDA approval and future court decisions
may also affect the Company's risk of product liability. Although the Company
intends to obtain product liability insurance covering the On-Command Catheter
prior to commercialization, it does not currently have such insurance which may
be expensive and may not be available on acceptable terms, if at all. Although
BMT maintains product liability insurance with respect to its products, the
Company does not maintain product liability insurance for products that are in
clinical trials or otherwise in the development stage. A successful product
liability claim or series of claims brought against the Company that are not
covered by insurance or are in excess of BMT's insurance coverage with respect
to BMT's products could have a material adverse effect on the

12
<PAGE> 13

Company's business, financial condition and results of operations. In addition,
there can be no assurance that product recalls, which could have a material
adverse effect on the Company's business, financial condition and results of
operations, will not occur. See "Business -- Product Liability and Insurance."

UNCERTAINTY RELATED TO HEALTH CARE REFORM

Political, economic and regulatory influences are subjecting the health
care industry in the United States to fundamental change. Although Congress has
failed to pass comprehensive health care reform legislation to date, the Company
anticipates that Congress, state legislatures and the private sector will
continue to review and assess alternative health care delivery and payment
systems. Potential approaches that have been considered include mandated basic
health care benefits, controls on health care spending through limitations on
the growth of private health insurance premiums and Medicare and Medicaid
spending, the creation of large insurance purchasing groups, price controls and
other fundamental changes to the health care delivery system. Legislative debate
is expected to continue in the future, and market forces are expected to demand
reduced costs. The Company cannot predict what impact the adoption of any
federal or state health care reform measures, future private sector reform or
market forces may have on its business.

DEPENDENCE UPON KEY SUPPLIERS

BMT purchases certain of the components used to manufacture the On-Command
Catheter from several single source suppliers, with whom BMT has no long-term
agreements. Any interruptions or delays associated with any component shortages,
particularly as the Company scales up its manufacturing activities in support of
commercial sales of the On-Command Catheter, could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Manufacturing."

UNCERTAINTY OF BMT OPERATIONS

Although the business operations of BMT have continued since 1971, there
can be no assurance that BMT's revenues, cash flow or current profitability and
growth rate will continue in the future. Furthermore, BMT is subject to general
business risks associated with operations of its size and, in particular, to the
same risks faced by other companies that manufacture and market medical device
products. Because virtually all of BMT's proprietary and OEM products
incorporate silicone components, any cost increase or other negative development
associated with this material could adversely affect its business, financial
condition and results of operations. BMT has faced two labor union election
contests in the past six years and may face additional elections in the future.
In the event BMT becomes subject to a collective bargaining agreement, it may
experience increased labor and related costs that could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Employees, and -- BMT."

ENVIRONMENTAL RISKS

Through BMT, the Company utilizes many raw materials in the manufacturing
process that are subject to various environmental laws and regulations. Proper
disposal of waste including metals and chemicals used in the manufacturing
process is a major consideration for medical device manufacturers. In the event
of a violation of environmental laws, the Company could be held liable for
damages and for the costs of remedial actions and could also be subject to
revocation of permits necessary to conduct its business. Any such revocations
could require the Company to cease or limit production at its facilities, which
could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company is also subject to
environmental laws relating to the storage, use and disposal of chemicals, solid
waste and other hazardous materials, as well as air quality regulations. Changes
or restrictions on discharge limits, emissions levels, or material storage or
handling might require a high level of unplanned capital investment and/or
subsequent relocation to another location. There can be no assurance that the
Company will be able to comply with the discharge levels mandated or that the
costs of complying with such regulations will not require additional capital
expenses. Furthermore,

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there can be no assurance that compliance with such regulations will not have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Manufacturing."

MANAGEMENT'S BROAD DISCRETION IN THE USE OF UNALLOCATED PORTION OF PROCEEDS

A significant portion of the net proceeds to the Company from this Offering
are not allocated to any specific purpose. Accordingly, the Company's management
will retain broad discretion as to the allocation of a substantial portion of
the net proceeds from this Offering. Stockholders will not have any advance
notice or opportunity to approve the Company's uses of these unallocated
proceeds.

CONTINUED CONTROL BY DIRECTORS, EXECUTIVE OFFICERS AND AFFILIATED ENTITIES AFTER
OFFERING

The Company's directors, executive officers and entities affiliated with
them will, in the aggregate, beneficially own approximately 56% of the Common
Stock following the completion of this Offering. As a result, these
stockholders, if acting together, would be able to exert substantial influence
over and could possibly control all matters requiring approval by the
stockholders of the Company, including the election of directors and mergers or
other business combination transactions. In addition, each of Warburg, Pincus
Investors, L.P. ("Warburg"), the Company's principal stockholder, and Vertical
Fund Associates, L.P. ("Vertical") is entitled to designate, in certain
circumstances, three members of the Board of Directors, which may not have more
than 11 directors without consent of each such stockholder. In this event,
Warburg and Vertical, if acting together, would be able to control the
direction, management and policies of the Company. See "Certain Transactions"
and "Principal Stockholders."

NO PRIOR PUBLIC TRADING MARKET

Prior to this Offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will develop
or, if one does develop, that it will be maintained. The initial public offering
price, which was established by negotiations between the Company and the
Underwriters, may not be indicative of prices that will prevail in the trading
market. In particular, there can be no assurance that the market price will not
be below the initial public offering price. See "Underwriting."

POSSIBLE VOLATILITY OF STOCK PRICE

The stock market has from time to time experienced significant price and
volume fluctuations that are unrelated to the operating performance of
particular companies. These broad market fluctuations may adversely affect the
market price of the Common Stock. In addition, the market price of the Common
Stock is likely to be highly volatile. Factors such as fluctuations in the
Company's operating results, announcements of technological innovations or new
products by the Company or its competitors, FDA and international regulatory
actions, actions with respect to reimbursement matters, developments with
respect to patents or proprietary rights, public concern as to the safety of
products developed by the Company or others, changes in health care policy in
the United States and internationally, changes in stock market analyst
recommendations regarding the Company, other medical device companies or the
medical device industry generally and general market conditions may have a
significant effect on the market price of the Common Stock. In addition, it is
likely that during future quarterly periods, the Company's results of operations
may fluctuate significantly or may fail to meet the expectations of stock market
analysts and investors and, in such event, the Company's stock price could be
materially adversely affected. In the past, securities class action litigation
has often been initiated following periods of volatility in the market price of
a company's securities. Such litigation, if brought against the Company, could
result in substantial costs and a diversion of management's attention and
resources, which could have a material adverse effect on the Company's business,
financial condition and results of operations.

CERTAIN ANTI-TAKEOVER EFFECTS OF CHARTER, BYLAW AND OTHER PROVISIONS

Certain provisions of the Company's Certificate of Incorporation and Bylaws
may have the effect of making it more difficult for a third party to acquire, or
of discouraging a third party from attempting to acquire, control of the
Company. Such provisions could discourage bids for the Common Stock at a premium
over its market price or otherwise limit the price that certain investors might
be willing to pay

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<PAGE> 15

in the future for shares of the Common Stock. The Board of Directors may issue
Preferred Stock without any vote or further action by the stockholders, which
issuance may have the effect of preventing or delaying a change in control of
the Company and may adversely affect the rights of the holders of the Common
Stock. See "Description of Capital Stock."

SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS; POTENTIAL ADVERSE EFFECT
ON MARKET PRICE

Sales of Common Stock (including shares issued upon the exercise of
outstanding options or warrants) in the public market after this Offering could
materially adversely affect the market price of the Common Stock. Such sales
also might make it more difficult for the Company to sell equity securities or
equity-related securities in the future at a time and price that the Company
deems appropriate. Upon the completion of this Offering, the Company will have
11,818,626 shares of Common Stock outstanding, assuming no exercise of options
or warrants after June 30, 1996 (other than warrants to purchase a total of
1,428,571 shares of Common Stock to be exercised by Warburg and Vertical upon
the closing of this Offering), of which the 3,350,000 shares offered hereby will
be freely tradable without restriction under the Securities Act of 1933, as
amended (the "Securities Act") unless held by "affiliates" of the Company, as
that term is defined in Rule 144 under the Securities Act. The remaining
8,468,626 shares of Common Stock held by existing stockholders will be
"restricted securities" within the meaning of Rule 144 promulgated under the
Securities Act, and were issued and sold by the Company in reliance on
exemptions from the registration requirements of the Securities Act. These
shares may be sold in the public market only if registered or pursuant to an
exemption from registration, such as Rule 144, 144(k) or Rule 701 under the
Securities Act. All executive officers, directors and certain stockholders of
the Company, holding in aggregate 8,342,465 shares of Common Stock, are subject
to lock-up agreements which provide that they will not offer, sell, contract to
sell, grant any option to purchase or otherwise dispose of, or agree to dispose
of, directly or indirectly, any shares of Common Stock, options or warrants to
acquire shares of Common Stock or securities exchangeable for or convertible
into Common Stock owned by them for a period of 180 days after the date of this
Prospectus, without the prior written consent of Dillon, Read & Co. Inc.
("Dillon Read"). Dillon Read may, in its sole discretion and at any time without
notice, release all or any portion of the shares subject to such lock-up
agreements after the initial 180-day period. Upon expiration of the 180-day
lock-up agreements, approximately 658,979 shares of Common Stock held by
existing stockholders will be eligible for immediate public resale without
restriction pursuant to Rule 144(k) or Rule 701, and approximately 2,938,647
shares held by existing stockholders will be eligible for sale subject to the
volume limitation and other restrictions of Rule 144. The remaining 4,871,000
shares held by existing stockholders will become eligible for public resale
pursuant to Rule 144 upon the expiration of their two-year holding periods. As
of June 30, 1996, 1,055,674 shares were subject to outstanding options and
20,935 shares were subject to outstanding warrants. All of these shares are
subject to the lock-up agreements described above. Upon expiration of such
lock-up agreements, 667,186 shares subject to such options will be vested. Upon
expiration of the lock-up agreements referred to above, holders of approximately
5,914,406 shares of Common Stock (including shares issuable upon exercise of
certain options and warrants) or their transferees will be entitled to certain
registration rights with respect to such shares. If such holders, by exercising
such rights, cause a large number of shares to be registered and sold in the
public market, such sales could have a material adverse effect on the market
price of the Common Stock. See "Description of Capital Stock" and "Shares
Eligible for Future Sale."

IMMEDIATE AND SUBSTANTIAL DILUTION

The initial public offering price is substantially higher than the net
tangible book value per share of Common Stock. Investors purchasing shares of
Common Stock in this Offering will therefore incur immediate and substantial net
tangible book value dilution. See "Dilution."

ABSENCE OF DIVIDENDS

The Company has never paid cash dividends on its Common Stock and does not
anticipate paying cash dividends in the foreseeable future. See "Dividend
Policy."

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THE COMPANY

The Company was originally incorporated in Florida in April 1992 as Trek
Medical Corporation. In June 1994, the Company changed its name to UroQuest
Corporation. In October 1996, the Company reincorporated in the State of
Delaware and changed its name to "UroQuest Medical Corporation."

Unless the context otherwise requires, references in this Prospectus to the
"Company" refer to UroQuest Medical Corporation and each of its wholly owned
subsidiaries, assuming the acquisition of BMT has been consummated. Unless the
context otherwise requires, (i) references to "UroQuest" refer only to UroQuest
Medical Corporation and UroCath Corporation, its wholly owned subsidiary, and
(ii) references to "BMT" refer to BMT, Inc. and Bivona, Inc., its wholly owned
subsidiary. The Company's principal executive offices are located at 265 East
100 South, Suite 220, Salt Lake City, Utah 84111-1616, and its telephone number
is (801) 322-1554.

ACQUISITION OF BMT

In June 1996, UroQuest entered into a definitive agreement and plan of
merger (the "Agreement") to acquire BMT. BMT designs, develops, manufactures and
markets a line of proprietary silicone medical device products as well as
provides engineering design, development and manufacturing services for silicone
products on an OEM basis for other medical device companies. BMT has been a
contract manufacturer for the Company since June 1994 and has manufactured
approximately 2,100 Male On-Command Catheters. The business of BMT was commenced
in 1971 to develop tracheal and endotracheal tubes for airway management and has
expanded to include various other medical device products. The principal
facilities and executive offices of BMT are located in Gary, Indiana. See
"Business -- BMT."

In the acquisition, shareholders of BMT will receive, in the aggregate, a
combination of $10 million cash and 2,500,000 newly issued shares of Common
Stock. Consummation of the acquisition is expected to occur upon the closing of
this Offering. For the year ended December 31, 1995, BMT had revenues of
$14,257,413 and net income of $1,431,614. For the six months ended June 30,
1996, BMT had revenues of $7,483,367 and net income of $772,814. See the
Consolidated Financial Statements of BMT and pro forma financial information set
forth elsewhere in this Prospectus.

The Company believes the acquisition will provide a number of significant
benefits. BMT is one of a limited number of specialty manufacturers of silicone
catheters in the United States. The acquisition will enable the Company to
control its own production source while providing necessary capacity and
flexibility in the manufacturing process, as well as expand the Company's
limited product line and experience which has focused primarily on the
On-Command Catheter. The product development and production expertise of BMT is
also anticipated to be utilized by the Company to develop additional On-Command
Catheter products and other new devices related to the management and diagnosis
of urological disorders.

The ongoing operations of BMT are expected to provide a source of revenues
and cash flow while the Company completes its clinical testing and prepares to
market the On-Command Catheter. There can be no assurance, however, that such
revenues and cash flow or BMT's current profitability and growth rate will
continue in the future or that the expected benefits of the acquisition will be
realized. Moreover, the acquisition of BMT could have the effect of disrupting
the current business and operations of BMT by adversely affecting material
relationships with significant customers and others, including principal
suppliers and key employees. The acquisition could also redirect significant
management attention and other resources that would otherwise be devoted to the
ongoing development of the On-Command Catheter. Accordingly, the acquisition
could have a material adverse effect on the Company's business, financial
condition and results of operations.

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USE OF PROCEEDS

The net proceeds to the Company from the sale of the 3,350,000 shares of
Common Stock offered hereby, at the initial public offering price of $6.00 per
share, are estimated to be approximately $18,093,000 ($20,896,950 if the
Underwriters' over-allotment option is exercised in full), after deducting the
underwriting discounts and commissions and estimated offering expenses payable
by the Company.

The Company expects to use approximately $10 million of the net proceeds
for the cash portion of the consideration in connection with the acquisition of
BMT, $6 million for funding of clinical trials and expansion of marketing and
sales activities and approximately $1 million for investment in research and
development. The remaining $1.1 million will be used for working capital and
general corporate purposes including the repayment of approximately $900,000 of
short-term indebtedness. Although the Company may use a portion of the net
proceeds for the licensing or acquisition of new products or technologies from
third parties, the Company currently has no specific plans or commitments to do
so.

Except for the $10 million to be used in the acquisition of BMT, the
amounts set forth above are estimates, and the amounts actually expended for
each purpose may vary significantly depending upon numerous factors, including
the progress of the Company's clinical trials, actions relating to regulatory
and reimbursement matters, and the costs and timing of expansion of marketing
and sales activities. Pending such uses, the Company intends to invest the net
proceeds of this Offering in short-term, interest-bearing, investment grade
securities. See "Risk Factors -- Management's Broad Discretion in the Use of
Unallocated Portion of Proceeds," "Acquisition of BMT" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

DIVIDEND POLICY

The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain any future earnings for funding
growth and, therefore, does not anticipate paying any cash dividends in the
foreseeable future. The payment by the Company of cash dividends, if any, on its
Common Stock in the future is subject to the discretion of the Board of
Directors and will depend on the Company's earnings, financial condition,
capital requirements and other relevant factors. See "Description of Capital
Stock."

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CAPITALIZATION

The following table sets forth the capitalization of the Company as of June
30, 1996 (i) on a pro forma basis to give effect to, upon the closing of this
Offering, the acquisition of BMT, the exercise of warrants to purchase a total
of 1,428,571 shares of Common Stock by certain of the Company's stockholders,
the filing of the Company's Restated Certificate of Incorporation, authorizing a
class of 16,000,000 shares of undesignated Preferred Stock, the Company's
reincorporation in the State of Delaware (including a 1-for-3.5 reverse stock
split of the outstanding shares of Common Stock and Preferred Stock and the
conversion of all outstanding shares of Non-Voting Common Stock into Common
Stock effected in connection therewith), and the conversion of all outstanding
shares of Preferred Stock into Common Stock, and (ii) as adjusted to reflect the
sale of the 3,350,000 shares of Common Stock offered hereby at the initial
public offering price of $6.00 per share, after deducting the underwriting
discounts and commissions and estimated offering expenses payable by the
Company, and after application of the estimated net proceeds from this Offering.

<TABLE>
<CAPTION>
JUNE 30, 1996
-------------------------------
PRO FORMA(2) AS ADJUSTED(3)
------------ --------------
<S> <C> <C>
Long-term debt, excluding current portion................................ $ 2,027,223 $ 2,027,223
----------- -----------
Stockholders' equity:
Preferred stock: $0.001 par value; 16,000,000 shares authorized, pro
forma and as adjusted; none issued and outstanding, pro forma and as
adjusted............................................................ $ -- $ --
Common stock, $0.001 par value, 31,000,000 shares authorized, pro forma
and as adjusted; 8,468,626 shares issued and outstanding pro forma;
11,818,626 shares issued and outstanding, as adjusted(1)............ 8,469 11,819
Additional paid-in capital............................................. 18,400,569 36,490,219
Deferred compensation.................................................. (139,548) (139,548)
Retained earnings (deficit accumulated during development stage)....... (4,645,432) (4,645,432)
----------- -----------
Total stockholders' equity..................................... 13,624,058 31,717,058
----------- -----------
Total capitalization......................................... $ 15,651,281 $ 33,744,281
=========== ===========
</TABLE>

- ---------------

(1) Excludes 20,935 shares of Common Stock reserved for issuance pursuant to
outstanding warrants and 1,055,674 shares of Common Stock reserved for
issuance pursuant to outstanding stock options as of June 30, 1996. Also
excludes a total of 482,963 shares of Common Stock reserved for future
issuance under the Company's 1994 Stock Option Plan and 1996 Employee Stock
Purchase Plan. See Note 5 of Notes to Consolidated Financial Statements of
UroQuest Medical Corporation, "Management -- Stock Plans" and "Description
of Capital Stock."

18
<PAGE> 19

DILUTION

The pro forma net tangible book value of the Company as of June 30, 1996,
after giving effect to the acquisition of BMT and each of the other events that
will occur upon or prior to the closing of this Offering, was $2,189,682 or
$0.26 per share of Common Stock outstanding. Pro forma net tangible book value
per share represents the total amount of the Company's stockholders' equity,
less intangible assets, divided by 8,468,626 shares outstanding of Common Stock.

Net tangible book value dilution per share represents the difference
between the amount per share paid by purchasers of shares of Common Stock in
this Offering and the pro forma net tangible book value per share of Common
Stock immediately after completion of this Offering. After giving effect to the
sale of 3,350,000 shares of Common Stock in this Offering at the initial public
offering price of $6.00 per share and the application of the estimated net
proceeds therefrom, the pro forma net tangible book value of the Company as of
June 30, 1996 would have been $20,282,682 or $1.72 per share. This represents an
immediate increase in net tangible book value of $1.46 per share to existing
stockholders and an immediate dilution in net tangible book value of $4.28 per
share to purchasers of Common Stock in this Offering, as illustrated in the
following table:

<TABLE>
<S> <C> <C>
Public offering price per share..................................... $6.00
Pro forma net tangible book value per share before this Offering.... $0.26
Increase per share attributable to new investors.................... 1.46
-----
Pro forma net tangible book value per share after this Offering..... 1.72
-----
Dilution per share to new investors................................. $4.28
=====
</TABLE>

The following table sets forth as of June 30, 1996, after giving effect to
each of the events that will occur upon or prior to the closing of this
Offering, the difference between the existing stockholders and the purchasers of
shares in this Offering (at the initial public offering price of $6.00 per
share) with respect to the number of shares purchased from the Company, the
total consideration paid and the average price per share paid:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)(2)............... 8,468,626 71.7% $24,249,678 54.7% $ 2.86
New investors............................. 3,350,000 28.3 20,100,000 45.3 6.00
--------- ------ ----------- ------
Total................................. 11,818,626 100.0% $44,349,678 100.0%
========= ====== =========== ======
</TABLE>

- ---------------
(1) Excludes 1,076,609 shares of Common Stock issuable upon exercise of stock
options and warrants outstanding as of June 30, 1996, at a weighted average
price per share of $0.73.

(2) Includes the issuance of 2,500,000 shares of Common Stock for the
acquisition of BMT and $5 million from the exercise of warrants to purchase
a total of 1,428,571 shares of Common Stock by certain of the Company's
stockholders upon the closing of this Offering.

19
<PAGE> 20

SELECTED FINANCIAL DATA

The following sets forth selected consolidated financial data with respect
to UroQuest and BMT on a historical basis and on a pro forma basis giving effect
to the acquisition of BMT and each of the other events that will occur prior to
or upon the closing of this Offering. The information set forth below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the Financial Statements and notes
thereto, including the Pro Forma Financial Statements and notes thereto,
included elsewhere in this Prospectus.

UROQUEST -- HISTORICAL

The financial information set forth below with respect to UroQuest's
consolidated statements of operations for each of the years in the three year
period ended December 31, 1995 and with respect to UroQuest's consolidated
balance sheets at December 31, 1994 and 1995 are derived from consolidated
financial statements of UroQuest included elsewhere herein that have been
audited by KPMG Peat Marwick LLP, independent certified public accountants, and
is qualified by reference to such consolidated financial statements and notes
related thereto. The financial information for the six month periods ended June
30, 1995 and 1996, and for the period from inception (April 8, 1992) to June 30,
1996, and as of June 30, 1996 has been derived from UroQuest's unaudited
consolidated financial statements which, in the opinion of management, reflect
all adjustments of a normal recurring nature necessary for a fair presentation
of the financial position and results of operations for such periods. The
results for the six months ended June 30, 1996 are not necessarily indicative of
the results to be expected for the entire year. UroQuest is considered a
development stage company as described in Note 1 of Notes to Consolidated
Financial Statements of UroQuest.

<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS PERIOD FROM
INCEPTION ENDED INCEPTION
(APRIL 8, 1992) YEAR ENDED DECEMBER 31, JUNE 30, (APRIL 8, 1992)
TO DEC. 31, ----------------------------------------- ------------------------ TO JUNE 30,
1992 1993 1994 1995 1995 1996 1996
--------------- ---------- ------------ ----------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED
STATEMENTS OF
OPERATIONS DATA:
Net sales.......... $ -- $ 979 $ 2,801 $ -- $ -- $ -- $ 3,780
Cost of sales...... -- 832 2,381 -- -- -- 3,213
---------- ---------- ----------- ----------- ---------- ---------- -----------
Gross profit....... -- 147 420 -- -- -- 567
Research and
development...... -- 120,531 431,295 1,106,631 436,879 539,183 2,197,640
General and
administrative... 11,234 156,647 483,399 397,523 202,835 225,016 1,273,819
Sales and
marketing........ -- 38,392 30,257 46,262 3,589 45,787 160,698
---------- ---------- ----------- ----------- ---------- ---------- -----------
Operating loss..... (11,234) (315,423) (944,531 ) (1,550,416) (643,303) (809,986) (3,631,590)
Other income
(expense), net... -- -- (260,663 ) 36,669 16,963 (6,848) (230,842)
---------- ---------- ----------- ----------- ---------- ---------- -----------
Net loss........... $ (11,234) $ (315,423) $(1,205,194 ) $(1,513,747) $ (626,340) (816,834) $(3,862,432)
========== ========== =========== =========== ========== ========== ===========
Pro forma net loss
per share(1)..... $ (0.36) $ (0.18)
=========== ==========
Shares used in
computing pro
forma net loss
per share(1)..... 4,192,549 4,560,519
=========== ==========
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
--------------------------------------- JUNE 30,
1993 1994 1995 1996
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.................. $ 187,422 $ 564,097 $ 1,113,594 $ 262,145
Working capital............................ 33,491 325,723 463,594 (248,329)
Total assets............................... 221,581 1,205,273 1,721,027 1,151,448
Long-term debt, excluding current
portion.................................. -- 552,188 -- --
Deficit accumulated during development
stage.................................... (326,657) (1,531,851) (3,045,598) (3,862,432)
Total stockholders' equity................. 65,560 412,621 1,047,126 299,058
</TABLE>

- ---------------
(1) See Note 1 of Notes to Consolidated Financial Statements of UroQuest for
information concerning the computation of pro forma net loss per share and
shares used in computing pro forma net loss per share.

20
<PAGE> 21

BMT -- HISTORICAL

The financial information set forth below with respect to BMT's
consolidated statements of operations for each of the years in the three year
period ended December 31, 1995 and with respect to BMT's consolidated balance
sheets at December 31, 1994 and 1995 is derived from consolidated financial
statements of BMT included elsewhere herein that have been audited by Grant
Thornton LLP, independent certified public accountants, and is qualified by
reference to such consolidated financial statements and notes related thereto.
The financial information for the six month periods ended June 30, 1995 and 1996
and as of June 30, 1996 has been derived from BMT's unaudited consolidated
financial statements which, in the opinion of management, reflect all
adjustments of a normal recurring nature necessary for a fair presentation of
the financial position and results of operations for such periods. The results
for the six months ended June 30, 1996 are not necessarily indicative of the
results to be expected for the entire year.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Net sales..................................... $11,239,155 $11,728,409 $14,257,413 $6,706,256 $7,483,367
Cost of sales................................. 6,351,651 6,668,026 7,228,308 3,469,929 3,953,455
----------- ----------- ----------- ---------- ----------
Gross profit.................................. 4,887,504 5,060,383 7,029,105 3,236,327 3,529,912
Research and development...................... 531,395 586,319 986,265 460,778 530,585
General and administrative.................... 1,080,971 1,151,485 1,653,197 862,251 908,115
Sales and marketing........................... 1,581,302 1,607,404 1,692,881 862,851 691,609
----------- ----------- ----------- ---------- ----------
Income from operations........................ 1,693,836 1,715,175 2,696,762 1,050,447 1,399,603
Other income (expense), net................... (343,846) (289,728) (315,148) (151,382) (136,789)
----------- ----------- ----------- ---------- ----------
Income before income taxes.................... 1,349,990 1,425,447 2,381,614 899,065 1,262,814
Income taxes.................................. 540,000 572,500 950,000 352,110 490,000
----------- ----------- ----------- ---------- ----------
Net income.................................... $ 809,990 $ 852,947 $ 1,431,614 $ 546,955 $ 772,814
=========== =========== =========== ========== ==========
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
----------------------------------------- JUNE 30,
1993 1994 1995 1996
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments................................. $ 174,414 $ 21,526 $ 47,083 $ 6,398
Working capital............................... 759,893 3,028,694 3,464,491 3,987,413
Total assets.................................. 6,909,863 6,952,200 8,190,829 7,864,592
Long-term debt, excluding current portion..... 1,582,764 2,831,985 2,385,884 2,027,223
Retained earnings............................. 993,146 1,846,093 3,277,707 4,050,521
Total stockholders' equity.................... 1,789,646 2,650,393 3,682,407 4,452,501
</TABLE>

21
<PAGE> 22

PRO FORMA DATA, AS ADJUSTED

The financial information set forth below reflects the pro forma
acquisition by UroQuest of BMT as if the acquisition of BMT had occurred at the
beginning of each of the periods presented for statements of operations data and
as of June 30, 1996 for balance sheet data. The following pro forma data, as
adjusted, has not been audited. This data also gives effect to each of the
events that will occur prior to or upon the closing of this Offering, as
adjusted to reflect the receipt of the net proceeds from the sale of the
3,350,000 shares of Common Stock offered hereby at the initial public offering
price of $6.00 per share and after deducting the underwriting discounts and
commissions and estimated offering expenses payable by the Company.

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1995 1996(3)
------------ ----------
<S> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales................................................................ $ 14,257,413 $7,483,367
Cost of sales............................................................ 7,634,708 4,156,655
----------- ----------
Gross profit............................................................. 6,622,705 3,326,712
Research and development................................................. 2,092,896 1,069,768
General and administrative............................................... 2,050,720 1,133,131
Sales and marketing...................................................... 1,739,143 737,396
Amortization of goodwill................................................. 566,800 283,400
----------- ----------
Operating income......................................................... 173,146 103,017
Other income (expense), net.............................................. (278,479) (143,637)
----------- ----------
Net loss................................................................. $ (105,333) $ (40,620)
=========== ==========
Pro forma net loss per share(1).......................................... $ (0.01) $ (0.00)
=========== ==========
Shares used in computing pro forma net loss per share(1)................. 11,471,120 11,839,090
=========== ==========
</TABLE>

<TABLE>
<CAPTION>
JUNE 30,
1996
-----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................... $12,971,543
Working capital......................................................... 16,832,084
Total assets............................................................ 35,591,539
Long-term debt excluding current portion................................ 2,027,223
Deficit accumulated during development stage............................ (4,645,432)
Stockholders' equity(2)................................................. 31,717,058
</TABLE>

- ---------------
(1) See Notes to Pro Forma Financial Statements and Note 1 of Notes to
Consolidated Financial Statements of UroQuest for information concerning the
computation of pro forma net loss per share and shares used in computing pro
forma net loss per share.

(2) Pro forma stockholders' equity assumes the conversion of all outstanding
shares of Preferred Stock and Non-Voting Common Stock into Common Stock.

(3) Operating income and net loss are presented before nonrecurring charges of
$783,000. See Note (a) of Notes to Pro Forma Financial Statements.

22
<PAGE> 23

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Financial
Statements and notes thereto included elsewhere in this Prospectus. The
following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in such forward-looking statements as a result of certain factors
discussed under "Risk Factors" and elsewhere in this Prospectus.

UroQuest Background

The Male On-Command Catheter was originally designed and developed by
Richard C.Davis, M.D., the principal founder and Chief Science Officer of the
Company. In December 1986, the technology underlying the Male On-Command
Catheter was licensed to Surgitek, Inc. ("Surgitek"), a urological and plastic
surgery products subsidiary of Bristol-Myers Squibb Company. Surgitek spent
approximately five years and substantial sums advancing the technology,
engineering prototype catheters, conducting clinical trials and preparing
regulatory filings for the Male On-Command Catheter. In 1992, Surgitek was
acquired by Cabot Medical Corporation, and as a result of nonperformance under
the license agreement, the technology relating to the Male On-Command Catheter
reverted back to Dr. Davis and was transferred to UroCath, a wholly owned
subsidiary of UroQuest, in February 1993.

In November 1994, UroQuest hired a new Chief Executive Officer to
facilitate the regulatory approval process, including necessary clinical trials,
commercialize the On-Command Catheter and to seek additional funding to support
UroQuest's operations. In December 1994, Uroquest secured all remaining
intellectual property rights related to the Female On-Command Catheter. UroQuest
also intensified its efforts in design and engineering refinements,
manufacturing tooling, production testing and regulatory filings in connection
with conducting clinical trials in the United States of the Male On-Command
Catheter and initiating clinical trials for the Female On-Command Catheter. In
June 1995, UroQuest raised $2.2 million pursuant to the issuance of Preferred
Stock to Warburg and Vertical, allowing UroQuest to continue its efforts to
develop and commercialize the On-Command Catheter.

The Company has a limited history of operations and has experienced
substantial operating losses since inception. Notwithstanding the acquisition of
BMT, the Company expects its operating losses to continue for at least the next
two years as it continues to expend substantial resources in funding clinical
trials in support of regulatory and reimbursement approvals, expansion of
marketing and sales activities, and research and development. There can be no
assurance that the Company will achieve or sustain profitability in the future.

Acquisition of BMT

In June 1996, the Company entered into a definitive agreement to acquire
BMT, pursuant to which BMT will become a wholly owned subsidiary of the Company.
BMT develops, manufactures and markets a line of proprietary silicone medical
device products as well as provides engineering design, development and
manufacturing services for silicone products on an OEM basis for other medical

23
<PAGE> 24

device companies. BMT is one of a limited number of specialty manufacturers of
silicone catheters in the United States. BMT has been a contract manufacturer
for the Company since June 1994 and has manufactured approximately 2,100 Male
On-Command Catheters.

In the acquisition, shareholders of BMT will receive, in the aggregate, a
combination of $10 million cash and 2,500,000 newly issued shares of Common
Stock. The acquisition will be accounted for under the purchase method of
accounting and will result in goodwill of approximately $11 million.
Amortization of such goodwill and other depreciation charges related to the
acquisition, totalling approximately $973,000 annually, will negatively impact
the Company's consolidated results of operations. Consummation of the
acquisition is expected to occur upon the closing of this Offering.

The Company believes the acquisition will provide a number of significant
benefits. The acquisition will enable the Company to control its own
manufacturing source while providing necessary capacity and flexibility in the
manufacturing process, as well as expand the Company's limited product line and
experience which has focused primarily on the On-Command Catheter. The product
development and engineering expertise of BMT is also anticipated to be utilized
by the Company to develop additional On-Command Catheter products and other new
devices related to the management and diagnosis of urological disorders.

The ongoing operations of BMT are expected to provide a source of revenues
and cash flow while the Company completes its clinical testing and prepares to
market the On-Command Catheter. There can be no assurance, however, that such
revenues and cash flow or BMT's current profitability and growth rate will
continue in the future or that the expected benefits of the acquisition will be
realized. The acquisition of BMT constitutes the Company's first acquisition of
another business. BMT's operations are significantly different in many respects
from the Company's current operations, and the acquisition may result in a
number of unforeseen difficulties and problems that could have a material
adverse effect on the Company's business, financial condition and results of
operations.

BMT Background

The business of BMT was commenced in 1971 to develop tracheal and
endotracheal tubes for airway management and has expanded to include various
other medical device products. BMT has utilized its product development
expertise and production capabilities to manufacture silicone medical device
products on an OEM basis, including components, assemblies and finished devices
for use in gastroenterology, urology, cardiopulmonary, parenteral and diagnostic
applications.

In December 1987, the business of BMT was acquired by Synthelabo, a
pharmaceutical division of L'Oreal S.A. In October 1992, the business was
acquired from Synthelabo by the existing executive officers and certain other
employees of BMT in a management buyout for approximately $7 million. These
officers and employees have continued to operate the business of BMT since the
buyout.

Over the past three years, BMT has implemented various management
strategies to increase sales and profitability. These strategies have included
elimination of low margin products, expansion of BMT's line of proprietary
products, investment in research and development, and improvements in
manufacturing facilities and capabilities. BMT operates under GMPs and is in the
process of obtaining ISO-9001 certification and CE mark status. There can be no
assurance, however, that BMT will obtain such certification or status.

RESULTS OF OPERATIONS -- UROQUEST

Net sales and cost of sales. To date, UroQuest has had no material sales.

Research and development. Research and development expenses include
clinical testing and regulatory expenses. For the six months ended June 30,
1996, research and development expenses increased to $539,183 from $436,879 for
the six months ended June 30, 1995. This increase was due primarily to hiring of
clinical personnel, conducting clinical trials in the first half of 1996 and
implementing improvements in product design and the manufacturing process.
Research and development expenses increased to $1,106,631 in 1995 from $431,295
in 1994 resulting primarily from the transfer of certain

24
<PAGE> 25

personnel to research and development functions in 1995 from general and
administrative functions in 1994 and manufacturing costs incurred to produce
devices used in clinical trials. The increase in research and development
expenses in 1995, as compared to 1994, is also attributable to costs associated
with commencing clinical trials of the Male On-Command Catheter, including legal
and other fees related to regulatory matters, the increased number of research
and development employees and amortization of approximately $79,000 related to
patents purchased by UroQuest in December 1994. Research and development
expenses increased to $431,295 in 1994 from $120,531 in 1993 primarily as a
result of increased personnel costs and consultant fees related to regulatory
filings. Research and development expenses are expected to continue to increase
for the foreseeable future.

General and administrative. General and administrative expenses increased
to $225,016 for the six months ended June 30, 1996 from $202,835 for the six
months ended June 30, 1995. This increase was attributable primarily to the
establishment of UroQuest's headquarters in Salt Lake City, Utah in September
1995. General and administrative expenses decreased to $397,523 in 1995 from
$483,399 in 1994 due primarily to the transfer of certain personnel to research
and development functions in 1995 from general and administrative functions in
1994, as discussed above. General and administrative expenses increased to
$483,399 in 1994 from $156,647 in 1993 primarily as a result of increased
administrative personnel. General and administrative expenses are expected to
continue to increase as the Company hires additional personnel to support
anticipated expansion of the Company's business.

Sales and marketing. Sales and marketing expenses increased to $45,787 for
the six months ended June 30, 1996 from $3,589 for the six months ended June 30,
1995. This increase was attributable primarily to market research conducted by
outside consultants. Sales and marketing expenses increased to $46,262 in 1995
from $30,257 in 1994 due principally to costs associated with UroQuest retaining
a sales and marketing consultant. Sales and marketing expenses decreased to
$30,257 in 1994 from $38,392 in 1993 primarily as a result of lower costs of
market research.

Other income (expense), net. There was no material change in other income
(expense), net for the six months ended June 30, 1996 from the six months ended
June 30, 1995. Other income (expense), net increased to income of $36,669 in
1995 from an expense of $260,663 in 1994. This change resulted primarily from a
bad debt reserve in 1994 which was not incurred in 1995. In exchange for the
sale of assets unrelated to the urology business in 1994 to corporations owned
by certain stockholders of the Company, UroQuest received promissory notes
totaling $235,008 from such corporations. The notes were reserved in full as it
was probable that the Company would not collect the full amount of the notes. In
June 1996, approximately $200,000 principal amount of the notes due from Trek
Medical Corporation (a company formed in June 1994 by certain stockholders of
the Company) was converted into common stock of Trek Medical Corporation. The
balance of $35,008 remains outstanding as a promissory note from SilvaFoam
Corporation and U.S. Infusion Care, Inc. The total $35,008 of notes receivable
is reserved in full. The net change to 1995 from 1994 also resulted from an
increase of approximately $56,000 in interest income partially offset by an
increase of approximately $25,000 in interest expense. There were no items
included in other income (expense), net in 1993.

RESULTS OF OPERATIONS -- BMT

Six months ended June 30, 1996 and 1995

Net sales. Net sales increased to $7,483,367 for the six months ended June
30, 1996 from $6,706,256 for the six months ended June 30, 1995. This increase
was primarily attributable to higher sales volumes of tracheostomy tubes, one of
BMT's principal products in its proprietary product line.

Cost of sales. Cost of sales increased to $3,953,455 for the six months
ended June 30, 1996 from $3,469,929 for the six months ended June 30, 1995. This
increase was due primarily to higher sales volume and an increase in the sales
mix to higher cost products. Increased cost of sales also resulted from costs
associated with improvements in manufacturing and quality control processes.

25
<PAGE> 26

General and administrative. General and administrative expenses increased
to $908,115 for the six months ended June 30, 1996 from $862,251 for the six
months ended June 30, 1995, primarily as a result of increased salary and
benefit costs per employee.

Marketing and distribution. Marketing and distribution expenses decreased
to $691,609 for the six months ended June 30, 1996 from $862,851 for the six
months ended June 30, 1995. This decrease was due primarily to a temporary
reduction in marketing management personnel in the first half of 1996.

Research and development. Research and development expenses increased to
$530,585 for the six months ended June 30, 1996 from $460,778 for the six months
ended June 30, 1995. This increase was attributable primarily to increased
research and development personnel for various products, including the
On-Command Catheter.

Other income (expense), net. Other income (expense), net decreased to
$136,789 for the six months ended June 30, 1996 from $151,382 for the six months
ended June 30, 1995. This decrease resulted from lower borrowings and reduced
interest rates on such borrowings.

Years ended December 31, 1995, 1994 and 1993

Net sales. Net sales increased to $14,257,413 in 1995 from $11,728,409 in
1994. This income was primarily attributable to higher sales volumes of
tracheostomy tubes, new sales resulting from recently commercialized products
and new sales of products acquired by BMT in January 1995. Net sales increased
to $11,728,409 in 1994 from $11,239,155 in 1993. This increase also resulted
from increased sales volume of tracheostomy tubes and the introduction of BMT's
electrolarynx product.

Cost of sales. Cost of sales increased to $7,228,308 in 1995 from
$6,668,026 in 1994. The increase was principally due to higher net sales offset,
in part, by an increase in the sales mix of products with lower per unit costs
and reduced production costs resulting from process improvements. Cost of sales
increased to $6,668,026 in 1994 from $6,351,651 in 1993. This increase was
attributable to higher net sales and costs associated with the introduction of a
new proprietary product partially offset by a higher sales mix of lower cost
products.

General and administrative. General and administrative expenses increased
to $1,653,197 in 1995 from $1,151,485 in 1994. This increase resulted primarily
from increased personnel, costs incurred in connection with BMT's efforts to
obtain ISO-9001 certification, and litigation costs and related legal fees
associated with a contract dispute resolved in 1995 involving the distribution
of an electrolarynx product. General and administrative expenses increased to
$1,151,485 in 1994 from $1,080,971 in 1993 due primarily to increases in
employee salaries, wages and benefits.

Marketing and distribution. Marketing and distribution expenses increased
to $1,692,881 in 1995 from $1,607,404 in 1994. This increase was principally
attributable to increased direct selling and marketing efforts resulting in
higher net sales. These expenses were offset, in part, by reduced marketing
management costs. Marketing and distribution expenses increased to $1,607,404 in
1994 from $1,581,302 in 1993 due primarily to increased sales volume partially
offset by implementation of marketing cost control measures.

Research and development. Research and development expenses increased to
$986,265 in 1995 from $586,319 in 1994. This increase resulted primarily from
increased personnel to expedite the development of various new products.
Research and development expenses increased to $586,319 in 1994 from $531,395 in
1993, due to higher salaries and employee benefits costs partially offset by
BMT's cost control efforts.

Other income (expense), net. Other income (expense), net increased to
$315,148 in 1995 from $289,728 in 1994, resulting from increased borrowings
under BMT's existing line of credit. Other expense, net decreased to $289,728 in
1994 from $343,846 in 1993, attributable to decreased borrowings and a lower
interest rate on such borrowings.

26
<PAGE> 27

INCOME TAXES

UroQuest has not generated any taxable income to date and, therefore, has
not paid any federal income taxes since its inception. The Company accounts for
income taxes under Statement of Financial Accounting Standards No. 109 ("FAS
109"). Realization of deferred tax assets is dependent on future earnings, if
any, the timing and amount of which are uncertain. Accordingly, valuation
allowances, in amounts equal to the net deferred tax assets as of December 31,
1995 and 1994, have been established in each period to reflect these
uncertainties.

At December 31, 1995, UroQuest and BMT had net operating losses, for tax
purposes, of approximately $1,600,000 and $1,470,000, respectively, that can be
carried forward to reduce federal income taxes. However, utilization of net
operating losses and any tax credit carryforwards will be subject to annual
limitations due to the ownership change limitations of the Internal Revenue Code
of 1986, as amended, and similar state provisions.

LIQUIDITY AND CAPITAL RESOURCES

To date, UroQuest has financed its operations primarily through the private
sale of equity securities and, to a lesser extent, through short-term borrowings
and equipment lease financing. Since inception, UroQuest has raised $4,130,678
in net proceeds of private equity financing. BMT has financed its operations
primarily with cash generated from operations and bank provided working capital
financing.

In December 1994, UroQuest raised $390,000 pursuant to a private placement
of 12% secured promissory notes due December 31, 1996. In connection with such
placement, UroQuest agreed to issue the holders of such notes warrants
exercisable for 0.2857 of a share of Common Stock for each dollar of interest
earned, at an exercise price of $3.50 per share. The notes are secured by a
pledge of the Company's eight United States patents relating to the On-Command
Catheter. The Company's patents will be released from such pledge upon repayment
of the notes, which is expected to occur upon or shortly after the closing of
this Offering. Pursuant to the notes, the Company is also obligated to pay the
holders 5% of the net sales income received, if any, from the sale of products
covered by the patents during the period from January 1995 though December 1996.
This royalty arrangement will also be terminated upon repayment of the notes.

During the six months ended June 30, 1996 and the year ended December 31,
1995, UroQuest consumed cash in operations of $840,366 and $1,282,485,
respectively. The changes in cash used in operations from prior comparable
periods were due primarily to higher expenses associated with increased research
and development activities, and commencement and continuation of clinical
trials. Subsequent to June 30, 1996, UroQuest issued 10% demand promissory notes
totalling $500,000. The notes are unsecured and are expected to be repaid upon
or shortly after the closing of this Offering.

The Company's primary internal source of liquidity presently consists of
existing borrowings and cash anticipated to be generated from BMT's operations.
Since its inception, BMT has met its liquidity requirements primarily through
cash provided by operations, private stock offerings and short-term bank
borrowings. During the six months ended June 30, 1996 and the year ended
December 31, 1995, BMT generated net cash from operations of $1,176,675 and
$964,745, respectively. The substantial increase in cash generation in 1996 is
primarily due to strong sales growth in higher margin product lines in the
United States, as well as focused efforts in the management of accounts
receivable, payable and inventory levels. Compared to 1994, the cash generated
from operations in 1995 decreased primarily due to a substantial growth in
certain net sales resulting in a substantial increase in accounts receivable.

Cash used by BMT in investing activities decreased to $262,850 for the six
months ended June 30, 1996 from $424,195 for the same period in 1995. The
decrease was due primarily to the acquisition in 1995 of certain tangible and
intangible assets from International Medical Devices, Inc. ("IMD") for $325,000
in cash and substantial capital investments in new process equipment. Cash used
in investing activities increased to $707,419 for the year ended December 31,
1995 from $350,998 in the year ended December 31, 1994. The increase was due
primarily to the aforementioned investments.

Cash used by BMT in financing activities increased to $954,510 during the
six months ended June 30, 1996 from ($559,191) for the same period in 1995. The
increase was due primarily to the

27
<PAGE> 28

repayment of outstanding short and medium-term debt notes. Cash used in
financing activities decreased to $231,769 in the year ended December 31, 1995
from $1,264,280 in the year ended December 31, 1994. The decrease was due
primarily to substantial increases of short-term line of credit draws, driven by
substantial increases in accounts receivable, the cash payment for the assets
purchased from IMD, a $407,925 cash repurchase of common shares in BMT, and
substantial manufacturing equipment purchases. As of June 30, 1996, BMT had no
material capital expenditure commitments.

As of June 30, 1996 and December 31, 1995, UroQuest had cash and cash
equivalents of $262,145 and $1,113,594, respectively. The decrease since
December 31, 1995 was due primarily to the use of cash in operations. As of June
30, 1996, UroQuest had no significant noncancelable commitments for capital
expenditures or raw material purchases, although UroQuest may enter into such
commitments in the future. The Company's primary external sources of liquidity
are public and private debt and equity financings and bank provided debt
financing.

The Company expects its operating losses to continue for at least the next
two years as it continues to expend substantial resources in funding clinical
trials in support of regulatory and reimbursement approvals, expansion of
marketing and sales activities, and research and development. In addition, the
Company's results of operations may fluctuate significantly during future
quarterly periods. The Company plans to implement an aggressive marketing and
growth strategy, and all management estimates regarding liquidity and capital
requirements are subject to the factors discussed above and those set forth
under "Risk Factors" and elsewhere in this Prospectus.

RECENT DEVELOPMENTS

For the nine months ended September 30, 1996, UroQuest had an operating
loss of approximately $1,163,000 and a net loss of approximately $1,182,000 or
$(0.26) per share. These losses resulted primarily from UroQuest's continued
clinical testing, research and development, and related activities.

For the nine months ended September 30, 1996, BMT had net sales of
approximately $11,240,000. During this period, income from operations and net
income were approximately $2,210,000 and $1,228,000, respectively. These results
are generally consistent with BMT's results of operations for the six months
ended June 30, 1996.

On a pro forma as adjusted basis, net sales would have been approximately
$11,240,000 for the nine months ended September 30, 1996. For this period, pro
forma as adjusted operating income would have been approximately $318,000 and
pro forma as adjusted net income would have been approximately $71,000 or $0.01
per share. See the Pro Forma Financial Statements and notes thereto for a
discussion of the adjustments used in determining the pro forma calculations.

The information provided for the nine months ended September 30, 1996 is
unaudited, however, in the opinion of management such information reflects all
adjustments necessary for a fair presentation of the results of such period.

28
<PAGE> 29

BUSINESS

The Company was formed to design, develop and market advanced products for
the management and diagnosis of both male and female urological disorders. The
Company's principal product, the On-Command Catheter, is an endourethral (inside
the urethra) catheter incorporating a proprietary anchoring system and a
proprietary patient controlled, magnetically activated valve used to regulate
urine flow. The On-Command Catheter is designed to enable persons with either
urinary incontinence or urinary retention to manage their condition without the
restricted mobility, medical complications, discomfort and embarrassment
generally associated with many of the existing management alternatives,
including intermittent, Foley, external and suprapubic catheters, diapers and
absorbents, and penile clamps. Clinical trials of the On-Command Catheter have
demonstrated the utility of the device in managing male urinary outflow
disorders. The results of the clinical trials showed an overall symptomatic
urinary tract infection ("UTI") rate of less than 3% for all device insertions
during the trials. This rate is significantly lower than the rate of infection
generally associated with the use of Foley catheters. See "Business -- Urinary
Incontinence." Of the patients included in the trials, approximately 90% found
the Male On-Command Catheter maintained continence and was comfortable to wear
and easy to use.

Clinical trials of the Male On-Command Catheter have been conducted at
eight sites in the United States under an IDE application approved by the FDA.
Through August 31, 1996, 70 patients had received a total of 223 male devices,
with indwelling periods ranging from three days to 64 days, with an average
indwelling period of 25 days per device insertion. The longest trial period on
any patient was 32 months, with the patient receiving a total of 30 device
insertions. The results, while promising, are preliminary and additional
clinical testing is required before any definitive conclusions can be reached
concerning the general use of the On-Command Catheter. Consequently, the Company
is preparing to conduct a controlled, randomized clinical study under an
approved IDE application at three sites that have received IRB approval. The
predicate device to be used in connection with the study is the Foley catheter.
The Company expects to complete the study, which has a targeted enrollment of 60
male patients, in the first quarter of 1997. An IDE application for the Female
On-Command Catheter was approved in March 1996 and the Company has obtained IRB
approval at two investigational sites and is conducting a non-randomized pilot
evaluation prior to initiating a controlled, randomized study.

The Company expects to initiate clinical evaluation of the Male On-Command
Catheter in Europe pursuant to an arrangement with Braun, a European-based
multinational medical device company. Braun plans to conduct the evaluation and
to prepare the necessary regulatory filings in 16 European countries. The
clinical evaluation of the Male On-Command Catheter in Europe is expected to
begin by the end of 1996 at a total of six investigational sites in France,
Germany and Spain.

In June 1996, the Company entered into a definitive agreement to acquire
BMT. BMT designs, develops, manufactures and markets a line of proprietary
silicone medical device products as well as provides engineering design,
development and manufacturing services for silicone products on an OEM basis for
other medical device companies. BMT is one of a limited number of specialty
manufacturers of silicone catheters in the United States. BMT has been a
contract manufacturer for the Company since June 1994 and has manufactured
approximately 2,100 Male On-Command Catheters. The acquisition will be effected
through a merger of BMT with and into an acquisition subsidiary of the Company
pursuant to which shareholders of BMT will receive, in the aggregate, a
combination of $10 million cash and 2,500,000 newly issued shares of Common
Stock. The acquisition will enable the Company to control its own production
source while providing necessary capacity and flexibility in the manufacturing
process, as well as expand the Company's limited product line and experience
which has focused primarily on the On-Command Catheter. The product development
and production expertise of BMT is also anticipated to be utilized by the
Company to develop additional On-Command Catheter products and other new devices
related to the management and diagnosis of urological disorders. See
"Business -- BMT."

29
<PAGE> 30

LOWER URINARY TRACT ANATOMY AND FUNCTION

The urinary tract system aids the body in eliminating metabolic waste. The
kidneys process blood and filter waste products from the circulatory system,
thereby creating urine. The ureters drain the urine from the kidneys into the
bladder, which serves as a reservoir until urination. The storage capacity of
the bladder ranges from approximately one-quarter to one-half liter. The urinary
sphincter is a muscle at the base of the bladder which surrounds the bladder
neck and urethra and aids the bladder in maintaining continence. The urethra is
the tube through which urine flows when the bladder empties. This process is
referred to as "voiding." In males, the prostate gland surrounds the urethra and
provides reproduction function.

<TABLE>
<S> <C>
MALE FEMALE
</TABLE>

[ILLUSTRATION -- This illustration is a drawing of the male and female lower
urinary tract anatomy with applicable labeling.]

In a properly functioning lower urinary tract, the balance between urinary
continence and voiding is maintained by a complex dynamic interplay of autonomic
reflexes, neurologic functions and anatomic structures. The bladder neck and the
urinary sphincter work together to act as a valve under muscular control to keep
the urethra closed as the bladder fills with urine. During urination, the
urethra and urinary sphincter muscle reflex and open, while the bladder
contracts and the bladder neck opens, resulting in the voiding of urine. In a
properly functioning lower urinary tract, as the bladder neck opens
involuntarily in response to intra-abdominal pressure, the lower portion of the
urinary sphincter tightens in order to maintain continence. A malfunction in or
damage to any part of this system can cause urinary outflow dysfunction,
including incontinence and retention.

MARKET OVERVIEW

Introduction

30
<PAGE> 31

More than 50% of the estimated 1.5 million nursing home patients have
voiding disorders. Additionally, in contrast to the widely-held notion that
voiding disorders are primarily a problem of the institutionalized elderly, a
1986 National Institute on Aging study indicated that 30% of the estimated 40
million community-dwelling population between the ages of 60 to 84 also suffer
from some form of urinary outflow dysfunction. Furthermore, surveys of
community-dwelling younger individuals between the ages of 15 to 64 report that
between 1.5% to 5% of men, and between 10% and 25% of women, have voiding
problems. Medical experts believe that voiding problems are significantly
underreported.

Male Urinary Dysfunction

Research data indicates that over three million men in the United States
are affected by urinary outflow dysfunction. Based on an independent study
commissioned by the Company, the Company estimates that at least one million men
in the United States suffer from retention requiring management and
intervention, while at least two million men suffer from incontinence. These
problems are commonly caused by or result from the treatment of specific urinary
tract diseases, including prostate cancer and benign prostatic hyperplasia
("BPH").

The American Cancer Society estimates that approximately 320,000 new cases
of prostate cancer will be diagnosed in 1996. Industry studies also estimate
that approximately 30% of men age 50 or older may have latent prostate cancer.
Approximately 300,000 prostatectomies (the surgical removal of the prostate) are
performed each year in the United States to treat prostate cancer. Radiation is
also a common form of treatment. Damage to the external sphincter, bladder neck,
and nerves controlling urinary function following prostatectomy or radiation
therapy often leads to chronic incontinence. The same therapies can also cause
stricture and scarring, leading to obstructive voiding symptoms and retention. A
study published in the December 1993 issue of Urology reported that in a
follow-up study on men who had undergone a prostatectomy, 30% experienced daily
problems with incontinence while another 15% reported seeking treatment for
retention due to urethral strictures.

BPH is a common disease in men over age 50 that causes the prostate to
enlarge, putting pressure on the urethra and restricting urine flow. It is
estimated that approximately six million men in the United States suffer
moderate to severe symptoms of BPH. Severe cases are generally treated through
surgery requiring hospitalization followed by an extended recovery period.
Several new technologies are being developed to treat BPH in a less invasive
fashion. The initial clinical data from these therapies indicates that 10% to
15% of patients require extended catheterization following treatment due to
post-operative swelling of the prostate tissues which causes urinary retention.

Female Urinary Dysfunction

It is estimated that at least 10 million women suffer from urinary outflow
dysfunction. The most common problem is stress urinary incontinence resulting
from hypermobility of the urethra and bladder neck due to a weakening of the
musculature caused by pregnancies.

Urinary retention is less common in women than men due to anatomical
differences and the relative lack of specific contributing diseases. The Company
estimates that approximately 100,000 women have chronic urinary retention in the
United States. Bladder neck suspension surgery, which is an increasingly popular
procedure performed on women to correct incontinence, often causes temporary
retention problems for up to 90 days. Women with this condition are generally
required to wear a Foley catheter or are taught to perform intermittent
catheterization until normal voiding function

31
<PAGE> 32

returns. As the number of women seeking treatment for incontinence increases,
the Company believes the incidence of temporary retention will correspondingly
increase.

URINARY INCONTINENCE

Urinary incontinence, the most common form of urinary outflow or voiding
dysfunction, is caused by a variety of factors, including vaginal childbirths,
congenital abnormalities, trauma, congestive heart failures, strokes, Multiple
Sclerosis, spinal cord injuries, drug effects, metabolic abnormalities,
infections and dementia. Urinary incontinence is generally categorized as either
stress incontinence or urge incontinence.

Stress incontinence refers to the involuntary loss of urine during
coughing, laughing, sneezing, jogging or any other physical activity which
causes an increase in intra-abdominal pressure. This condition varies in
severity from those who leak urine only as a result of certain sudden movements
or physical activities to those who leak urine simply upon standing. Stress
incontinence generally results from either hypermobility or intrinsic sphincter
deficiency. Hypermobility is a lack of anatomic stability caused primarily by
weak surrounding tissue, which results in the abnormal movement of the bladder
neck and urethra in response to sufficient intra-abdominal pressure or exertion.
Intrinsic sphincter deficiency is the inability to contract the urinary
sphincter sufficiently to maintain continence.

Urge incontinence refers to the involuntary loss of urine due to a bladder
contraction which is associated with a strong, uncontrollable desire to urinate,
often referred to as urgency. Urge incontinence may result from, among other
things, a hyperactive bladder muscle, neurologic abnormalities, such as those
caused by a stroke, and urethral instability. Patients can also suffer from a
combination of urge and stress symptoms, generally referred to as "mixed"
incontinence.

The additional physical effects of urinary incontinence include a
predisposition to perineal rashes, pressure ulcers, urinary tract infections,
urosepsis, falls and fractures. This condition is also associated with
depression, social withdrawal, isolation, loss of mobility, feelings of
embarrassment and inadequacy, and reduced sexual functioning, and can cause
considerable caregiver burden.

Treating Urinary Incontinence

Incontinent persons generally seek treatments such as surgery,
pharmaceuticals and behavioral therapy when the condition begins to interfere
with their lifestyle. The following table highlights the relevant gender,
clinical indication and major drawbacks associated with each of these treatment
alternatives as more fully described below.

<TABLE>
<CAPTION>
RELEVANT
TREATMENT ALTERNATIVE GENDER CLINICAL INDICATION MAJOR DRAWBACKS
- -------------------------- ---------- -------------------------- --------------------------
<S> <C> <C> <C>
Artificial urinary Male/ Incontinence due to Highly invasive;
sphincter surgery Female intrinsic sphincter urethral erosion and
deficiency only injury; mechanical
malfunction
Bladder neck suspension Female Stress incontinence only Temporary retention;
surgery surgical complications
Urethral bulking procedure Male/ Incontinence due to Must be repeated
Female intrinsic sphincter periodically; mixed
deficiency only results
Pharmaceuticals Male/ Urge incontinence only Seldom curative;
Female adverse side effects
Behavioral therapy Female Stress incontinence only Mixed results; can
exacerbate problem
</TABLE>

32
<PAGE> 33

Artificial urinary sphincter surgery. The implantable artificial sphincter
is an occlusive cuff that is surgically implanted around the urethra of an
incontinent patient. Although this procedure is generally effective for patients
with intrinsic sphincter deficiency, the Company believes that it is used
relatively infrequently (fewer than 6,000 procedures per year) primarily because
there are a limited number of patients for whom it would be indicated, and
because 32% of the patients have complications including infection, urethral
erosion and mechanical failure. In addition, the implantation surgery is
expensive and traumatic, involves general anesthesia and requires several weeks
or months for full recovery.

Bladder neck suspension surgery. Bladder neck suspension surgery is
primarily indicated for female stress incontinence. In this procedure, the
physician elevates and stabilizes the urethra and the bladder neck in order to
prevent hypermobility. These procedures are delicate and complicated and often
fail to redress the problem. Complications include symptomatic UTI, temporary
retention problems, obstruction symptoms, sepsis and prolonged suprapubic pain.
Bladder neck surgery is also expensive and traumatic, may involve general
anesthesia and requires several weeks or months for full recovery.

Urethral bulking procedure. Another surgical treatment for incontinence is
the use of injectable urethral bulking materials. In these procedures, Teflon,
collagen or other materials are injected into the area around the urethra with a
needle to create a mild obstruction. Injectable materials are a new and
potentially attractive treatment alternative because they are considerably less
invasive than the surgical procedures described above. Clinical experience with
injectable materials shows they are suitable primarily for treatment of
incontinence due to intrinsic sphincter deficiency, and produce mixed results in
men and women. The procedure is relatively expensive ($1,500 to $3,000 per
treatment) and must be repeated periodically because of bioabsorption.

Pharmaceuticals. In general, drugs available for the treatment of
incontinence act on the nerve receptors associated with the bladder
neurotransmitter system. Accordingly, drug treatment is appro-
priate for treating urge incontinence but is not appropriate for managing stress
incontinence. While drugs can partially alleviate the symptoms of incontinence,
they are seldom curative. Also, drug use for incontinence may cause adverse side
effects including drowsiness, dryness of mouth, dizziness, constipation and
urinary retention.

Behavioral therapy. Behavioral therapy and related techniques include
bladder training and habit modification, pelvic muscle exercises, biofeedback
and electrical stimulation. While these are low-risk procedures, they typically
address only female stress incontinence and are seldom curative. These
techniques are time consuming and present patients with an uncertain outcome. In
addition, in the case of pelvic muscle training exercises, there is the
possibility of worsening the condition if the exercises are performed
incorrectly.

Managing Urinary Incontinence

A recent study indicated that less than 3% of treatments for urinary
incontinence are curative. Furthermore, most are invasive, costly, and can
actually worsen an incontinent person's symptoms or

33
<PAGE> 34

have other unintended side effects. Therefore, incontinent persons typically
turn to management alternatives, including those summarized in the following
table and more fully described below.

<TABLE>
<CAPTION>
RELEVANT
MANAGEMENT ALTERNATIVE GENDER CLINICAL INDICATION MAJOR DRAWBACKS
- -------------------------- ---------- -------------------------- --------------------------
<S> <C> <C> <C>
Diapers and absorbents Male/ Stress/urge incontinence Wetness; odor; rash;
Female multiple daily changes
Foley catheters Male/ Stress/urge incontinence High infection rate;
Female urethral erosion;
external leg bag
Male external catheters Male Stress/urge incontinence Penile irritation; daily
changes; external leg
bag
Bladder neck support Female Stress incontinence only Vaginal infection,
prostheses discharge and tissue
erosion; daily
reinsertions
Urethral plugs Female Stress incontinence only Multiple daily changes
Penile clamps Male Stress/urge incontinence Penile edema and erosion;
removal every three
hours
</TABLE>

Diapers and absorbents. Adult diapers and pads, which capture urine upon
leakage, function similarly to baby diapers. Patients have the convenience and
privacy of purchasing these products without seeing a physician. While the
absorbency, size and fit of these products have improved over the last several
years, major disadvantages include lack of control over urine flow, lack of
dryness, skin irritations and rash, embarrassment about appearance and odor,
perceived social stigma, inconvenience and significant lifestyle compromise.
Based on various industry sources, the Company estimates that an incontinent
person in the United States who regularly uses adult diapers and incontinence
pads often spends up to $1,500 per year. Although third-party reimbursement is
generally not available for these products, retail sales of adult absorbents in
1995 were estimated at over $2.5 billion in the United States alone.

Foley catheters. The Foley catheter is an indwelling device used by both
men and women that provides continuous drainage of the bladder. The device
consists of a bladder balloon and a drainage conduit that extends outside the
body and is connected to an external collection bag. Because this design permits
bacteria to enter the body, symptomatic UTI is a common problem with Foley
catheterization, and is recognized as a major cause of morbidity and increased
health care costs in both hospitals and nursing homes. The Company estimates
that as many as one out of four hospital patients in acute care settings require
short-term Foley catheterization. Research studies have indicated that
approximately 10% to 30% of these patients develop symptomatic UTI (estimated by
the Company to be approximately 450,000 to 1,350,000 episodes per year). For
patients requiring long-term Foley catheterization, research has documented
rates of symptomatic UTI as high as 100%. In the hospital setting, symptomatic
UTI prolongs stays by an estimated two to three days, resulting in increased
costs ($2,000 to $3,000 per patient), and increased risk of death. Complications
associated with symptomatic UTI include sepsis, kidney infection, urinary
stones, and abscesses in the tissue surrounding the kidney. Foley catheters also
cause irritation to the penis and urethral erosion due to catheter movement, and
require a leg bag for drainage, thereby restricting movement and lifestyle. The
Company estimates that over 60 million Foley catheters are used annually in the
United States.

Male external catheters. The male external catheter is a disposable
catheter consisting of a condom-like sheath tapering into a funnel connected to
a drainage tube. The sheath is unrolled onto the penis and adheres by means of
an adhesive. Urine drains through the male external catheter into a leg bag
which must be emptied several times a day. Typically, the catheter is removed
and discarded at least daily. Skin irritation, infection, embarrassment,
inconvenience and reduced mobility are all common drawbacks to male external
catheters.

34
<PAGE> 35

Bladder neck support prostheses. Bladder neck support prostheses are used
for female stress incontinence. Roughly the size and shape of contraceptive
diaphragms, these devices are used to lift the bladder neck and urethra by
applying pressure through the neighboring vaginal cavity. It is difficult to fit
a patient properly and to apply enough pressure to eliminate the leakage of
urine without causing pain. Potential adverse side effects include vaginal
infection, discharge and tissue erosion. Prostheses are generally only worn for
short periods of time and require daily removal and reinsertion by the patient.

Urethral plugs. Urethral plugs are devices which occlude the female urethra
to manage stress incontinence. Urethral plugs are designed to maintain dryness
and may be an attractive alternative to absorbents for female patients with
stress incontinence who require management during periods of activity. They
serve only as a plug and must be removed, discarded and replaced with a new plug
each time a woman voids. This frequent changing may be expensive, inconvenient,
and may require both a high degree of patient dexterity and the use of a sterile
environment, which may potentially limit their market acceptance.

Penile clamps. Penile clamps are external compression devices which fit
around the shaft of the penis to prevent leakage of urine. The clamps operate by
constricting the urethra by mechanical, inflation or other similar means. These
devices are not widely used due to their bulk, fit and discomfort. They also
have a tendency to cause penile obstruction, edema and erosion if not removed
every three hours.

URINARY RETENTION

Unlike incontinence, the management of which primarily involves lifestyle
considerations, urinary retention is a medical condition which, if left
untreated, can lead to severe infection, kidney failure and death. Market
research commissioned by the Company indicates that over one million persons in
the United States suffer from retention. The most common causes of retention are
neurogenic bladder and urinary tract obstruction.

Neurogenic bladder refers to the inability of the bladder to contract in a
normal manner and initiate voiding. Causes of neurogenic bladder include spinal
cord injury, diabetes, Parkinson's Disease, Multiple Sclerosis and other nervous
system trauma.

Urinary tract obstruction refers to blockage of the bladder neck and/or the
urethra which prevents the normal passage of urine. This condition can be caused
by drug side effects, surgical scarring, post-operative swelling, enlarged
prostate, other surgical procedures, congenital abnormalities and other
complications. Urinary obstruction patients often suffer from a combination of
incontinence and retention.

Managing Urinary Retention

There are currently few treatment options available for retention.
Neurogenic problems are generally irreversible. Most urethral obstructions can
be removed through surgery but often return. However, patients with retention
can manage their symptoms through the use of intermittent catheterization, Foley
catheters or suprapubic catheters, as summarized in the following table and more
fully described below.

<TABLE>
<CAPTION>
RELEVANT
MANAGEMENT ALTERNATIVE GENDER CLINICAL INDICATION MAJOR DRAWBACKS
- ----------------------------- -------- -------------------------- -------------------------------
<S> <C> <C> <C>
Intermittent catheterization Male/ Neurogenic bladder or High infection rates; multiple
Female urethral obstruction daily insertions; urethral
inflammation
Foley catheters Male/ Neurogenic bladder or High infection rates; external
Female urethral obstruction leg bag; urethral erosion
Suprapubic catheters Male/ Neurogenic bladder or High infection rates;
Female urethral obstruction uncontrolled leakage; skin
erosion
</TABLE>

35
<PAGE> 36

Intermittent catheterization. Intermittent catheterization ("IC") is
currently the preferred management modality for patients with urinary retention.
IC involves the use of a straight catheter inserted through the urethra into the
bladder to achieve voiding. Patients using IC often must perform this procedure
every three to six hours. This procedure can be uncomfortable, prone to
infection, and often results in severe urethral irritation. IC techniques are
classified as either clean or sterile. Clean IC involves the re-use of catheters
cleaned between each use. While clean IC is less expensive, patients can develop
severe or chronic infections which require them to switch to sterile IC, which
involves the use of more expensive single use catheters. Costs for sterile IC
can exceed $600 each month. Of the estimated one million patients with
retention, market research commissioned by the Company indicates 55% use
intermittent catheterization or have recurring problems with urethral
strictures.

Foley catheters. In addition to their use for managing incontinence as
discussed above, Foley catheters are also used to manage retention in
conjunction with external collection bags. Market research commissioned by the
Company indicates that approximately 30% of patients with retention use Foley
catheters. Foley catheters are used primarily by patients who are unable to
perform IC or who have recurring problems with urethral strictures.

Suprapubic catheters. Suprapubic catheters are surgically inserted into the
bladder through the abdomen and sutured into place. The catheters, in
conjunction with external collection bags, function similarly to Foley
catheters. These devices are generally used for patients who are unable to use
IC or Foley catheters because of limited manual dexterity or other factors.
Suprapubic catheters can severely limit patient mobility and cause chronic
infection, strictures and other medical complications.

THE ON-COMMAND SOLUTION FOR MANAGING INCONTINENCE AND RETENTION

The On-Command Catheter is an endourethral catheter incorporating a
proprietary anchoring system and a proprietary patient controlled, magnetically
activated valve used to regulate urine flow. The On-Command Catheter is designed
to enable persons with either incontinence or retention to manage their
condition without the restricted mobility, medical complications, discomfort and
embarrassment generally associated with many of the existing management
alternatives including intermittent, Foley, external and suprapubic cathers,
diapers and absorbents, and penile clamps.

Unlike most of the widely used products for the management of incontinence,
which are designed to capture urine flow in an external container or absorbent
medium, the On-Command Catheter enables the incontinent person to remain dry
without interfering with normal lifestyle activities and without the associated
medical and psychological problems. Unlike most of the widely used products for
the management of retention which result in severe lifestyle restrictions, the
On-Command Catheter allows the patient with retention to empty the bladder
conveniently and without the potential complications associated with the use of
an external collection bag or the need for IC.

The principal features of the On-Command Catheter include:

- Patient Control. The On-Command Catheter enables persons with either
incontinence or retention to maintain control of their urinary outflow.
The On-Command Catheter prevents urine from leaving the urinary tract
until the incontinent person electively decides to void enabling such
person to remain dry. The On-Command Catheter allows the patient with
retention to void when desired and without the need for IC.

- Non-Surgical Application. The On-Command Catheter is designed to be a
relatively low-risk, non-surgical management application for urinary
outflow problems when compared to surgery or permanently implanted
devices. This is particularly important due to the uncertainty and
complications of invasive treatments, or when the longevity of the
patient is in question.

- Ease of Use. The operation of the On-Command Catheter is simple and
efficient for the patient. The device is also easy for the physician to
understand, size and insert because it shares several common design
features with other commonly used indwelling catheters, such as the Foley

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catheter. There is no initial capital or inventory investment required
and a minimum of training is necessary for a physician to become
proficient in the use of the device.

- Convenience and Enhanced Lifestyle. The proprietary endourethral design
of the On-Command Catheter eliminates the need for external collection
bags and absorbents that can restrict mobility and compromise lifestyle.
Periodic replacement is also convenient when compared to products like
diapers, intermittent catheters and urethral plugs which must be changed
or replaced multiple times per day.

- Lower Incidence of Complications. The On-Command Catheter, because of its
endourethral design, is believed to result in fewer complications than
other products designed for the treatment or management of urinary
outflow problems. Incontinent persons are likely to stay dryer, reducing
the risks of rashes, skin irritations, urethral strictures and other
complications.

- Reduced Infection Rate. Male patients with either incontinence or
retention have been shown in the Company's clinical trials to have lower
symptomatic UTI rates while using the Male On-Command Catheter, when
compared with infection rates generally associated with the use of Foley
catheters.

- Cost Effectiveness. The Company believes that less frequent replacement
of the On-Command Catheter should provide a competitive cost advantage
over products that are changed daily or multiple times per day. In
addition, the Company anticipates that the overall treatment cost using
the On-Command Catheter will be lower due to a reduced incidence of
complications and side effects, as well as patient transfers into
institutionalized settings.

Urinary outflow dysfunction can result from a wide range of diseases,
surgical complications and other factors that can affect anatomic structures,
autonomic reflexes or neurologic function. As a result, it is difficult for a
single treatment or management alternative to effectively address every specific
condition. There are certain specific patients who would not be able to benefit
from the clinical and lifestyle advantages of the On-Command Catheter. First,
patients who have limited motor function or dementia may not be able to
effectively activate the magnetic valve. Second, the anatomy of patients who
have low bladder capacity or bladder instability may not be able to accommodate
an endourethral device such as the On-Command Catheter. Finally, patients with
other physical limitations such as excessive obesity or retracted penis may not
be able to use the On-Command Catheter.

Male On-Command Catheter

The Male On-Command Catheter consists of two separable units, the
endourethral catheter portion and the detachable inflator section. When the two
units are connected, prior to use, the device closely resembles a Foley
catheter. The device is inserted non-surgically through the urethra in a simple
five-minute procedure. Two balloons are inflated, one in the bladder to seal the
bladder neck and one in the urethra on the downstream side of the prostate gland
to anchor the device. The inflator portion is then detached and discarded,
allowing the device to reside completely inside the urethra with no

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exposed components, thereby reducing the risk of infection. The device is
designed to remain in place for up to 30 days.

[ILLUSTRATION- This illustration is a drawing of the catheter
section and the detachable inflator section of the male device with
applicable labeling, including a hand-held activation magnet.]

The proprietary control valve is located at the outlet end of the catheter
section and is magnetically activated. This valve can be opened by simply
placing a matchbook sized magnet externally along the underside of the penis,
allowing the urine to flow. Removing the magnet closes the valve, shutting off
the flow of urine and keeping the patient dry. Both insertion and removal
procedures are non-surgical, take only a few minutes and are easily accomplished
by medical staff or other caregivers. The Company offers a range of sizes, and
uses a proprietary sizing catheter to ensure appropriate fit. The sizing
catheter is easy for physicians to use and ensures a comfortable and customized
fit in a variety of anatomies.

Female On-Command Catheter

The Female On-Command Catheter also employs a catheter with a detachable
inflator section and a magnetically activated valve. The device is shorter than
the Male On-Command Catheter and substitutes the urethral anchoring balloon with
a small rounded external cap which anchors the device in place beneath the
labial folds of the vagina. The device is designed to remain in place for 15 to
30 days making it more convenient than many other products requiring multiple
changes per day. Because the external anchoring cap extends past the urethral
opening, symptomatic UTI rates in the Female On-Command Catheter are expected to
be higher than the Male On-Command Catheter which resides entirely inside the
urethra.

[ILLUSTRATION- This illustration is a drawing of the catheter
section and the detachable inflator section of the female device with
applicable labeling, including a hand-held activation magnet.]

The procedures for insertion, voiding and removal are similar to those for
the male device.

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CLINICAL TRIALS

Clinical trials of the Male On-Command Catheter were conducted by Surgitek,
a prior licensee of the Company's technology, from 1989 to 1992. The trials
evaluated a minimum of three successive device insertions for a period of 30 to
37 days each in male patients with either incontinence or retention. A total of
49 patients were enrolled receiving an aggregate of 201 Male On-Command Catheter
insertions. The longest trial period on any patient was 32 months, with the
patient receiving a total of 30 device insertions.

The clinical trials demonstrated the utility of the Male On-Command
Catheter in managing urinary outflow problems. The results of the clinical
trials showed an overall symptomatic UTI rate of less than 3% for all device
insertions during the trials. This rate is significantly lower than the rate of
infection generally associated with the use of Foley catheters. See
"Business -- Urinary Incontinence." The Company believes that the results are
due, in part, to the entirely indwelling design of the Male On-Command Catheter
which is not subject to bacterial influx from external tubing and collection
systems typically associated with a Foley catheter. In addition, the proprietary
anchoring system caused no adverse effects to the urethra or bladder.

In the clinical trials, the Male On-Command Catheter initially experienced
a high degree of mechanical failure; however, the device's performance improved
substantially as design changes, manufacturing procedures, testing protocols and
insertion techniques were modified and enhanced. Complications other than
symptomatic UTI primarily included migration, mis-sizing and bladder spasms.
Notwithstanding the foregoing, approximately 90% of the patients included in the
trials found the Male On-Command Catheter maintained continence and was
comfortable to wear and easy to use.

The Company submitted a 510(k) notification to the FDA in July 1994 based
on the clinical data collected by Surgitek. The Company was notified by the FDA
that the clinical trials were deficient in certain respects, particularly with
respect to the design of the trials, which had an insufficient number of
patients and was not structured as a controlled, randomized study, as required
under current FDA regulations. In response to the FDA, the Company designed a
controlled, randomized study of the Male On-Command Catheter and filed an IDE
application that was approved in July 1995.

The purpose of the study is to confirm prior clinical results and
demonstrate the safety and efficacy of the Male On-Command Catheter when
compared to a Foley catheter in managing urinary outflow dysfunction. To date,
the three participating centers have received IRB approval and enrollment is
underway. The study protocol includes the evaluation of a single device
insertion for a period of up to 30 days. The duration of the study is seven
weeks per patient, including enrollment and both pre-insertion and
post-insertion examinations. Study endpoints include comparison of symptomatic
UTI rates, physical changes to the bladder and urethra and patient assessment of
quality of life between study groups. The Company anticipates the completion of
the study, with a targeted enrollment of 60 patients, during the first quarter
of 1997. There can be no assurance that the study will be completed in this
timeframe.

The controlled, randomized study was initially started in September 1995
and then stopped in order to diagnose and correct a component assembly problem
causing migration of the device away from the bladder. The Company initiated two
non-randomized pilot studies to evaluate several assembly and manufacturing
procedures designed to correct the problem and other improvements, including a
modified magnetic valve and a new sizing catheter and procedure to enhance the
patient fit of the device. The pilot studies have involved a total of 21
patients through August 31, 1996, and the Company is currently completing the
second pilot study in preparation for recommencing the controlled, randomized
study in the near-term. There can be no assurance, however, that the Company
will not encounter additional problems associated with the Male On-Command
Catheter that could delay or prevent recommencement of such study.

The IDE for the Female On-Command Catheter was approved in March 1996 by
the FDA and the Company has obtained IRB approval at two investigational sites.
The clinical study will use a Foley

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catheter as the control device and will evaluate single device insertions over a
7 to 30 day period. The study will require seven weeks per patient to complete
and will include 180 patients, 90 of whom will receive the Female On-Command
Catheter and 90 of whom will receive the Foley catheter. Study endpoints include
comparison of symptomatic UTI rates, physical changes to the bladder and urethra
and patient assessment of quality of life between study groups. As part of the
approved IDE, the Company is conducting a non-randomized pilot evaluation of 20
patients to test protocols and procedures prior to initiating the controlled,
randomized study.

The Company expects to initiate clinical evaluation of the Male On-Command
Catheter in Europe pursuant to an arrangement with Braun. Braun has agreed to
conduct the evaluation and prepare the necessary regulatory filings in 16
European countries. The clinical evaluation in Europe is expected to begin by
the end of 1996 and will evaluate the Male On-Command Catheter at a total of six
investigational sites in France, Germany and Spain. The protocol will be similar
to the IDE approved protocol used in the United States. However, the Company
will not be required to include a control group. The Company anticipates
evaluating up to three sequential device insertions for each patient.

MARKETING AND SALES

The Company intends to market the On-Command Catheter directly in the
United States to physicians and their patients while using marketing
collaborations for institutions (nursing home and hospital care) and
international markets. The Company's marketing strategy is designed to create
awareness and promote the On-Command Catheter as the preferred alternative for
the management of lower urinary tract problems in men and women. The Company's
initial marketing efforts will be directed toward urologists, uro-gynecologists
and primary care physicians whose patients are seeking relief from urinary
outflow problems.

The On-Command Catheter represents a new management modality for urinary
outflow dysfunction, and there can be no assurance that the On-Command Catheter
will gain any significant degree of market acceptance among physicians, health
care payers or patients, even if necessary domestic or international regulatory
and reimbursement approvals are obtained. Patient acceptance of the device will
depend on many factors, including physician recommendations, the degree, rate
and severity of potential complications, the cost and benefits compared to
competing products, lifestyle implications, available reimbursement and other
considerations. Failure of the On-Command Catheter to achieve substantial market
acceptance would have a material adverse effect on the Company's business,
financial condition and results of operations.

Domestic Sales

Medical association estimates indicate that there are approximately 9,000
urologists and uro-gynecologists in the United States. Over half of these
specialists practice in groups with patients drawn from a wide geographic area.
Because of this concentration, the Company expects that a relatively small
direct sales force of approximately 20 individuals by 1999 can effectively
address this market.

The Company intends to implement its marketing strategy through clinical
sales specialists who will educate and train physicians and patients. These
specialists will include field-based paraprofessionals, nurse practitioners and
professional sales representatives with experience demonstrating medical
products and procedures. Initially, the Company will target the sunbelt region
of the United States where there is a greater percentage of older persons in
whom the incidence of urinary dysfunction is higher. The Company then intends to
expand its sales efforts into other areas of the country.

The Company believes that many patients using currently available products
to manage incontinence and retention are dissatisfied with such products.
Patient awareness of the benefits of the On-Command Catheter will be created
through the use of selected print advertising, incontinence advocacy group
sponsorship, prostate cancer newsletters and other targeted promotions. The
objective will be to inform patients that a new management option is available
and provide them with a toll free phone

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number to call for more information. Callers will be provided with the names of
physicians in the patient's area who have been trained by the clinical sales
specialist, have adopted the On-Command Catheter for their patients and are
prepared to evaluate the clinical suitability of the patient. The Company's
strategy is to identify reference physicians in selected geographic areas to
provide a referral network for patients seeking management alternatives. Timing
of the awareness media campaign will be carefully orchestrated to coincide with
the physician training. The Company's direct sales activities will also be
augmented through attendance and participation in trade shows and organizational
meetings specifically related to urology and urinary dysfunction and through the
publication of scientific papers discussing the results of expanded clinical
development work.

Based on market research commissioned by the Company, the Company believes
its initial target market includes men who have incontinence or retention whose
condition does not preclude them from using a medical device and who meet
certain additional criteria including age, manual dexterity and dissatisfaction
with their current management modality. This research also indicates that over
one million men are currently using a prescription medical device to manage
urinary outflow problems. The Company believes that patients currently using a
prescription medical device will be the first to recognize the benefits of the
On-Command Catheter. These male patients are accustomed to devices, see their
physician on a regular basis, and are believed to be the most receptive to
alternative management methods. Patients using absorbents who are dissatisfied
with the wetness, odor, discomfort and embarrassment associated with diapers are
also primary targets.

The Company is targeting women with moderate to severe stress incontinence
who require some form of continuous management and are dissatisfied with wearing
diapers and pads. The Company estimates that this represents a target market of
one and one-half million women in the United States. The Company intends to
introduce the Female On-Command Catheter initially through the physicians who
have had prior experience with the Male On-Command Catheter and are treating
female patients with similar profiles.

The Company expects eventually to add managed care specialists to address
the unique requirements of capitated health care systems including hospitals,
HMOs and nursing homes. The products will be sold on the basis of
pharmacoeconomic results and the overall cost effectiveness versus other
management and treatment modalities. The Company plans to analyze and use the
most appropriate distribution method to reach these institutional markets.

To date, the Company has not sold any On-Command Catheter products and does
not currently employ any marketing or sales employees for such device. There can
be no assurance that the Company can attract and retain its own qualified
marketing and sales personnel or otherwise design and implement an effective
marketing and sales strategy for the On-Command Catheter. The failure to
establish and maintain effective marketing, sales and distribution channels for
the Company's products, or to attract and retain qualified sales personnel to
support commercial sales of the Company's products, would have a material
adverse effect on the Company's business, financial condition and results of
operations.

International

International marketing efforts are initially being directed at Europe and
Japan. International sales are expected to be made through independent foreign
distribution arrangements. The Company has entered into an arrangement with
Braun to conduct clinical trials in Europe for the On-Command Catheter. Braun
has over 200 sales representatives in the major European countries who would be
responsible for selling and marketing the Company's catheter products. This
arrangement may lead to an exclusive licensing and distribution agreement in
Europe following the clinical trials. Preliminary discussions are currently
underway with other potential distributors in Japan and other Pacific Rim
countries. There can be no assurance that the Company will be successful in
establishing or maintaining effective marketing, sales and distribution channels
internationally.

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International sales may be adversely affected by the imposition of
government controls, export license requirements, political instability, trade
restrictions, changes in tariffs, distributor difficulties, communications
problems, fluctuations in foreign currency rates, foreign competition and other
factors. Any one or more of these factors could limit the Company's
international sales and have a material adverse effect on the Company's
business, financial condition and results of operations.

THIRD-PARTY REIMBURSEMENT

The Company believes, based on the availability of third-party
reimbursement for certain other medical devices, that the On-Command Catheter
will generally be eligible for coverage by third-party reimbursement programs.
There can be no assurance, however, that such reimbursement will be available.
The Company is unable to determine whether the On-Command Catheter reimbursement
amount, if any, will be sufficient to cover the cost of the product. The Company
currently estimates the price of the Male On-Command Catheter will be in excess
of $100 per month, based on the use of one device per month, although the exact
pricing of the Male On-Command Catheter has not yet been set. The pricing for
the Female On-Command Catheter has not yet been determined by the Company.
Medicare allowable costs for other urinary outflow dysfunction management
devices are approximately $60 for Foley catheters and approximately $85 for male
external catheters per month. Allowable reimbursement costs for sterile IC are
approximately $600 per month. The Company's long-term strategy is to obtain
separate reimbursement codes and perform outcome studies evaluating the cost
effectiveness of the On-Command Catheter compared to other device, absorbent and
treatment modalities.

If third-party reimbursement is unavailable, consumers will have to pay for
the On-Command Catheter themselves, resulting in greater relative out-of-pocket
costs for the device as compared to surgical procedures and other management
options for which third-party reimbursement is available. The Company does not
expect that third-party reimbursement will be available, if at all, unless and
until FDA and foreign regulatory approval is received. After such time, if ever,
as applicable regulatory approval is received, third-party reimbursement for the
On-Command Catheter will be dependent upon decisions by the Health Care
Financing Administration for Medicare in the United States and similar
authorities abroad, as well as by private insurers and other payers.

MANUFACTURING

UroQuest currently uses BMT to produce limited quantities of the On-Command
Catheter for use in its clinical trials. To date, BMT has manufactured
approximately 2,100 Male On-Command Catheters and only a limited number of
Female On-Command Catheters. Management anticipates that the acquisition of BMT
will provide significant manufacturing capabilities for UroQuest's products.

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The manufacturing facilities are currently operated in compliance with existing
GMPs and have passed inspection repeatedly by the FDA, as well as the United
Kingdom's Department of Health.

The business of BMT has been specialized in the manufacturing of medical
devices using predominantly silicone technology for 25 years. BMT currently
manufactures a broad range of silicone-based catheter-type products used in
various segments of the health care industry. BMT is in the process of obtaining
ISO-9001 certification from BSI Product Certification of the United Kingdom,
which is based on adherence to established standards in the area of quality
assurance and manufacturing process control, and CE mark status. There can be no
assurance, however, that BMT will obtain such certification or status.

BMT's manufacturing capabilities include custom compounding, where special
pigmentation, radiopacity agent, or unique ratio blending are necessary to
customize end product performance specifications. Liquid silicones and high
consistency silicones are utilized in injection, transfer, compression, insert
or blow molding processes to manufacture components in a variety of custom
configurations. BMT also has the capability to extrude single or multi-lumen
tubing, special round or compound profiles or even coextrusion with other
silicone or non-silicone substrates in a range of sizes from as small as 0.002"
inside diameter tubing to as large as 1.6" outside diameter. In some cases,
these basic processes yield a finished device. In most cases these molded or
extruded products become the components and/or subassemblies from which a broad
range of catheter-type devices are manufactured, including the On-Command
Catheter.

BMT has extensive assembly and fabrication capabilities. The molded or
extruded silicone components are combined together with any number of
non-silicone components to produce a variety of products. BMT has both Class
100,000 and Class 10,000 certified clean room assembly and packaging capability.
Other custom assembly processes include adhesiving, bonding, potting, forming,
porting, drilling, notching, cutting, printing, coating, dispensing and
reinforcing with wires or other non-silicone substrates. In addition, BMT has
developed proprietary surface enhancement technologies and processes which
provide a wide range of alternative product characteristics. Over 800,000
silicone catheter-type devices are currently manufactured annually at BMT. The
Company currently has excess manufacturing capacity available.

The On-Command Catheter has been manufactured at BMT over the past two
years involving design and process steps which have evolved over this period to
its current design. The processes and techniques required to manufacture and
assemble the On-Command Catheter are similar to those currently used by BMT to
manufacture other silicone catheter-type devices. The On-Command Catheter also
requires the procurement of several non-silicone components. The sources for
each component have been identified and a limited inventory of certain
components is currently available. In addition, BMT is seeking to develop
alternative sources for such components.

The Company may encounter difficulties, delays and significant expenses in
scaling up production of the On-Command Catheter, including potential problems
involving production yields, quality control, component supply and shortage of
qualified personnel. The Company may also experience higher than expected
manufacturing costs that could prevent the Company from selling the On-Command
Catheter at a commercially reasonable price. Notwithstanding BMT's manufacturing
expertise, there can be no assurance that difficulties or unfavorable costs will
not be encountered in mass-production of the On-Command Catheter and, in such
event, these difficulties or costs could result in a material adverse effect on
the Company's business, financial condition and results of operations.

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BMT utilizes many raw materials in the manufacturing process that are
subject to various environmental laws and regulations. In the event of a
violation of environmental laws, the Company could be held liable for damages
and for the costs of remedial actions and could also be subject to revocation of
permits necessary to conduct its business. Any such revocations could require
the Company to cease or limit production at its facilities, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company is also subject to environmental laws
relating to the storage, use and disposal of chemicals, solid waste and other
hazardous materials, as well as air quality regulations. Changes or restrictions
on discharge limits, emissions levels, or material storage or handling might
require a high level of unplanned capital investment and/or subsequent
relocation to another location. There can be no assurance that the Company will
be able to comply with the discharge levels mandated or that the costs of
complying with such regulations will not require additional capital expenses.
Furthermore, there can be no assurance that compliance with such regulations
will not have a material adverse effect on the Company's business, financial
condition and results of operations.

RESEARCH AND DEVELOPMENT

The Company's current research and development efforts are focused
primarily on broadening the number of On-Command configurations to address
additional clinical indications, as well as developing the Snap-Shot Urine
Chemistry Test System. The Company also intends to continue to build upon its
clinical knowledge and relationships to develop additional advanced, innovative
products for the management, treatment and diagnosis of other urological
problems. Accordingly, the Company intends to continue to devote significant
funds to its research and development activities. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

On-Command Convertible Catheter

The On-Command Convertible Catheter is being developed for use in patients
requiring temporary bladder management in a clinical setting where a Foley or
intermittent type catheter would normally be used to monitor urine output and
chemistry and evaluate kidney function. With the inflator portion attached, the
On-Command Convertible Catheter functions as would a Foley catheter allowing for
continuous bladder drainage. When continuous monitoring is no longer necessary
and continence has not yet returned, the inflator portion of the On-Command
Convertible Catheter can be disconnected and the device then functions in the
controlled flow mode. The patient can then move about without restriction or
without the attendant problems associated with an indwelling Foley catheter,
external tubing and collection bag. The Company estimates that over two million
Foley catheters are used annually in the United States for extended post-surgery
catheterization. The Company believes that separate clinical trials will not be
necessary for approval of the On-Command Convertible Catheter, and that the
device will be evaluated as an engineering modification to the current
On-Command Catheter.

On-Command Control Catheter

The On-Command Control Catheter is being developed for use with
semi-ambulatory or bed-ridden patients in long-term or home care environments.
An estimated $3 billion is spent annually in nursing homes to manage
incontinence alone. The On-Command Control Catheter incorporates a mechanical
valve mechanism that can be easily opened or closed by a caregiver to facilitate
patient voiding. The Company believes the device will be useful in the
management of incontinence in nursing homes and extended care settings,
replacing adult diapers, Foley catheters, male external catheters and suprapubic
catheters. The Company believes that separate clinical trials will not be
necessary for approval of the On-Command Control Catheter, and that the device
will be evaluated as an engineering modification to the current On-Command
Catheter.

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Snap-Shot Urine Chemistry Test System

The urine chemistry test system, to be identified under the trademark
"Snap-Shot," is a simple disposable device used for the chemical analysis of
urine samples. The product is a completely closed system in which urine can be
easily collected and tested for various chemical components. Because urine is a
body fluid that can potentially transmit dangerous diseases, OSHA has mandated
the use of precautionary measures when such fluids are being handled. The use of
gloves, gowns, face protection and special ventilation and disposal for these
supplies, as well as the specimen, raises the cost of urinalysis performed in a
physician's office.

The Snap-Shot is designed to ensure compliance with OSHA safety regulations
for the safe handling of body fluids during testing procedures. The Company is
not aware of any other manual urinalysis device which is either currently on the
market or under development and which complies with these regulations. The
Company believes that the Snap-Shot will be classified as a Class I device, and
therefore the Company will have to seek FDA marketing clearance or approval
through a 510(k) premarket notification. The Snap-Shot is in the prototype stage
of development and there can be no assurance that the Company will be able to
develop it as a product that will be accepted by the market or generate
significant sales. The Company has not sold any Snap-Shot products to date. The
Company estimates the potential annual market in the United States for the
Snap-Shot, if it proves to be feasible, to be approximately $200 million.

BMT Development Capabilities

BMT's prototype development and manufacturing expertise complement
UroQuest's basic research capabilities. BMT currently has a fully-staffed pilot
production laboratory with a range of capabilities including product molding,
extrusion, testing and assembly. BMT also has extensive experience in silicone
manufacturing and in materials selection for specific applications. BMT's
research and development staff consists of 7 engineers and 14 skilled
technicians. The Company intends to benefit from BMT's research and development
capabilities in connection with its development of the On-Command Catheter and
other urology products.

COMPETITION

Competition in the market for treatment and management of urological
disorders is intense and is expected to increase. The Company believes that the
primary competitive factors for its products will include the level of physician
and consumer awareness and acceptance of available management methods, the
degree, rate and severity of potential complications, price and related
benefits, lifestyle implications, available reimbursement and the training of
health care professionals and consumers in the use of available management
methods. The Company's ability to compete in this market will also be affected
by its product development capabilities and innovation, its ability to obtain
required regulatory approval, its ability to protect the proprietary technology,
its manufacturing and marketing capabilities and its ability to attract and
retain skilled employees.

The Company believes its principal competition will come from existing
incontinence management modalities, such as adult diapers and absorbents, with
additional competition from existing catheter and surgery products. Current
major competitors who compete in the adult absorbent market include
Kimberly-Clark Corporation, Procter & Gamble Company, Johnson & Johnson Co.,
Confab Technologies, Inc. and INBRAND Corporation. Current major competitors who
compete in the catheter/urine collection bag drainage system market include C.R.
Bard, Inc., Kendall Co., Mentor Corporation, Convatec and Baxter Technologies,
Inc. Current major competitors who compete in the market for surgical or
implantable products for incontinence include American Medical Systems, Inc.,
C.R. Bard, Inc., Mentor Corporation, Johnson & Johnson Co. and Collagen
Corporation.

The Company is aware that UroMed Corp., UroHealth, Inc., Rochester Medical
Corporation, Influence, Inc. and others are developing a number of alternative
products for the management of female stress incontinence. The Company is not
aware of any new products or technologies currently

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being tested that compete directly with the On-Command Catheter in the male
urinary outflow dysfunction market.

Most of the Company's competitors and potential competitors have
significantly greater financial, technical, research, manufacturing, marketing,
sales, distribution and other resources than the Company. It is possible that
other large health care and consumer product companies may also enter the
Company's markets in the future. Furthermore, academic institutions,
governmental agencies and other public and private research organizations will
continue to conduct research, seek patent protection and establish arrangements
for commercializing products that may compete with products offered by the
Company.

There can be no assurance that the Company's competitors will not succeed
in developing or marketing technologies and products that are more effective or
commercially attractive than any which may be offered by the Company, or that
such competitors will not succeed in obtaining regulatory approval, introducing
or commercializing any such products prior to the Company. Such developments
could have a material adverse effect on the Company's business, financial
condition and results of operations.

PATENTS AND PROPRIETARY RIGHTS

The Company's success will depend, in part, on its ability to obtain and
maintain patent protection for its products, to preserve its trade secrets and
to operate without infringing the proprietary rights of third parties. The
Company's strategy regarding the protection of its proprietary rights and
innovations is to seek patents on those portions of its technology that it
believes are patentable and to protect as trade secrets other confidential
information and proprietary know-how.

UroQuest holds ten United States patents, eight of which relate to the
On-Command Catheter, and numerous foreign patents and has five United States
patent applications and various foreign patent applications pending. One United
States patent and two patent applications relate to the Snap Shot chemistry test
system. The issued United States patents include both method and device claims.
UroQuest's first two patents, which relate to the On-Command Catheter, expire in
2000 and 2001 and the remainder of all other patents, including six related to
the On-Command Catheter, expire in the years from 2007 through 2014. In
addition, BMT holds fifteen Unites States patents and nine foreign patents.
BMT's issued patents cover technology related to proprietary products and,
except for two patents that expire in 1999 and 2000, have expiration dates
ranging from 2002 to 2014. The Company believes that its patents contain claims
which may provide a substantial competitive advantage to the Company. However,
there can be no assurance that the Company's issued patents, or any patents
which may be issued as a result of the Company's applications, will offer any
degree of protection. Moreover, there can be no assurance that any of the
Company's patents or patent applications will not be challenged, invalidated or
circumvented in the future. In addition, there can be no assurance that
competitors, many of whom have substantial resources and have made significant
investments in competing technologies, will not apply for and obtain patents
that will prevent, limit or interfere with the Company's ability to make, use or
sell its products either in the United States or internationally.

Some of the technology used in, and that may be important to, the Company's
products is not covered by any patent or patent application of the Company.
Therefore, the Company also relies on trade secrets and proprietary know-how,
which it seeks to protect, in part, through proprietary information agreements
with certain of its employees, consultants and other parties. The Company's
proprietary information agreements with employees and consultants contain
standard confidentiality provisions and, in certain instances, require such
individuals to assign to the Company without additional consideration any
inventions conceived or reduced to practice by them while employed or retained
by the Company, subject to customary exceptions. There can be no assurance that
proprietary information agreements with employees, consultants and others will
not be breached, that the Company would have adequate remedies for any breach,
or that the Company's trade secrets will not otherwise become known to or
independently developed by competitors. Moreover, litigation associated with the

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<PAGE> 47

enforcement by the Company of its trade secrets and proprietary know-how can be
lengthy and costly, with no guarantee of success.

To date, no claims have been brought against the Company alleging that its
technology or products infringe intellectual property rights of others. However,
there can be no assurance that such claims will not be brought against the
Company in the future or that any such claims will not be successful.

The Company seeks to protect its trademarks through registration.
On-Command(R) is a registered trademark of UroQuest. In addition, UroQuest has
filed intent to use applications for other marks which have been approved by the
PTO. BMT holds four registered trademarks, including Bivona(R), Fome-Cuf(R),
Aire-Cuf(R) and Saf T Flo(R) and 16 trademarks for which United States and
foreign registrations are pending. There can be no assurance, however, that
registration of the Company's trademarks will provide any significant
protection.

GOVERNMENT REGULATION

The Company's products, including the On-Command Catheter, will be subject
to pervasive and continuing regulation by the FDA. Pursuant to the Federal Food,
Drug and Cosmetic Act (the "FDC Act") and regulations promulgated thereunder,
the FDA regulates the preclinical and clinical testing, manufacture, labeling,
distribution and promotion of medical devices in the United States. Prior to
commercialization in the United States, a medical device generally must receive
FDA clearance or approval, which can be an expensive, lengthy and uncertain
process. Regulatory agencies in the various foreign countries in which the
Company's products may be sold may impose additional or varying regulatory
requirements. Noncompliance with applicable requirements can result in, among
other things, fines, injunctions, civil penalties, recall or seizure of
products, total or partial suspension of production, failure of the government
to grant premarket clearance or approval for devices, withdrawal of marketing
clearances or approvals, and criminal prosecution. The FDA also has authority to
request recall, repair, replacement or refund of the cost of any device
manufactured or distributed by the Company.

Following the enactment of the Medical Device Amendments to the FDC Act in
May 1976, the FDA has classified medical devices in commercial distribution into
one of three classes, Class I, II or III. This classification is based on the
controls deemed necessary to reasonably ensure the safety and efficacy of
medical devices. Class I devices are those whose safety and efficacy can
reasonably be ensured through general controls, such as adequate labeling,
premarket notification and adherence to FDA-mandated good manufacturing
practices ("GMPs"). Class II devices are generally those whose safety

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<PAGE> 48

and efficacy can reasonably be ensured through the use of general and special
controls, such as performance standards, post-market surveillance, patient
registries and FDA guidelines. The Company believes that the On-Command Catheter
will be considered a Class II device. Class III devices are devices which must
receive premarket approval by the FDA to ensure their safety and efficacy,
generally life-sustaining, life-supporting or implantable devices, and also
include all new devices introduced after May 28, 1976 that are not
"substantially equivalent" to legally marketed products. Manufacturers must also
comply with MDR requirements that a firm report to the FDA any incident in which
its product may have caused or contributed to a death or serious injury, or in
which its product malfunctioned and, if the malfunction were to recur, it would
be likely to cause or contribute to a death or serious injury. Labeling and
promotional activities are subject to scrutiny by the FDA and, in certain
circumstances, by the Federal Trade Commission. Current FDA enforcement policy
prohibits the marketing of approved medical devices for unapproved uses.

The Company is subject to routine inspection by the FDA and certain state
agencies for compliance with GMP requirements, MDR requirements, and other
applicable regulations. The FDA has proposed changes to the GMP regulations
which will likely increase the cost of compliance with GMP requirements. Changes
in existing requirements or adoption of new requirements could have a material
adverse effect on the Company's business, financial condition and results of
operation. There can be no assurance that the Company will not incur significant
costs to comply with laws and regulations in the future or that laws and
regulations will not have a material adverse effect upon the Company's business,
financial condition or results of operation.

The Company also is subject to numerous federal, state and local laws
relating to such matters as safe working conditions, manufacturing practices,
environmental protection, fire hazard control and disposal of hazardous or
potentially hazardous substances. There can be no assurance that the Company
will not be required to incur significant costs to comply with such laws and
regulations in the future or that such laws or regulations will not have a
material adverse effect upon the Company's ability to do business.

Before a new device can be introduced into the market in the United States,
the manufacturer or distributor generally must obtain FDA marketing clearance or
approval through either a 510(k) premarket notification or a PMA application. If
a manufacturer or distributor of medical products can establish that a new
device is "substantially equivalent" to a legally marketed Class I or Class II
medical device or to a pre-amendment Class III medical device for which the FDA
has not required premarket approval ("PMA"), the manufacturer or distributor may
seek FDA marketing clearance for the device by submitting a 510(k) notification.
The FDA recently has been requiring more vigorous demonstration of substantial
equivalence than in the past, including in some cases requiring submission of
clinical data. The 510(k) notification and the claim of substantial equivalence
may have to be supported by various types of information indicating that the
device is as safe and effective for its intended use as a legally marketed
predicate device.

Following submission of the 510(k) notification, the manufacturer or
distributor may not place the device into commercial distribution until an order
is issued by the FDA. The FDA has no specific time limit by which it must
respond to a 510(k) notification. It generally takes from four to 12 months from
submission to obtain 510(k) premarket clearance, but may take longer. The FDA
may agree with the manufacturer or distributor that the proposed device is
"substantially equivalent" to another legally marketed device, and allow the
proposed device to be marketed in the United States. The FDA may, however,
determine that the proposed device is not substantially equivalent, or may
require further information, such as additional clinical data, before a
substantial equivalence determination can be made. Such determination or request
for additional information could prevent or delay the market introduction of a
new product. For any devices that are cleared through the 510(k) process,
modifications or enhancements that could significantly affect safety or
effectiveness, or constitute a major change in the intended use of the device,
will require new 510(k) submissions.

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<PAGE> 49

If a manufacturer or distributor cannot establish to the FDA's satisfaction
that a new device is substantially equivalent to a legally marketed medical
device, the manufacturer or distributor will have to seek a PMA of the device. A
PMA, which must prove that a device is safe and effective, must be supported by
valid scientific evidence to demonstrate the safety and effectiveness of the
device, typically including the results of preclinical testing, clinical trials
and extensive manufacturing information. The PMA process can be expensive,
uncertain and lengthy. Upon receipt of a PMA application, the FDA makes a
threshold determination as to whether the application is sufficiently complete
to permit a substantive review. If sufficiently complete, the application is
declared fileable by the FDA and the FDA will begin an in-depth review of the
PMA. The FDA review of a PMA application generally takes one to three years from
the date the PMA is accepted for filing, but may take significantly longer. A
number of devices for which FDA approval has been sought by other companies have
never been approved for marketing. Modifications to a device that is the subject
of an approved PMA, its labeling or manufacturing process may require approval
by the FDA of PMA supplements or new PMAs. Supplements to a PMA often require
the submission of the same type of information required for an initial PMA,
except that the supplement is generally limited to that information needed to
support the proposed change from the product covered by the original PMA.

If human clinical trials of a device are required, whether for a 510(k) or
a PMA, and the device presents a "significant risk," the sponsor of the trial
(usually the manufacturer or the distributor of the device) will have to file an
investigational device exemption ("IDE") application prior to commencing human
clinical trials. The IDE application must be supported by data, typically
including the results of animal and laboratory testing. If the IDE application
is approved by the FDA and one or more appropriate Institutional Review Boards
("IRBs"), human clinical trials may begin at a specific number of
investigational sites with a specific number of patients, as approved by the
FDA. If the device presents a "nonsignificant risk" to the patient, a sponsor
may begin the clinical trial after obtaining approval for the study by one or
more appropriate IRBs without the need for FDA approval. Submission of an IDE
does not give assurances that FDA will approve the IDE and, if it is approved,
there can be no assurance that FDA will determine that the data derived from
these studies will support the safety and efficacy of the device or warrant the
continuation of clinical studies. An IDE supplement must be submitted to and
approved by the FDA before a sponsor or investigator may make a change to the
investigational plan that may affect its scientific soundness or the rights,
safety or welfare of human subjects.

The Company currently does not expect to submit a 510(k) notification for
the Male On-Command Catheter for single use insertion of up to 30 days until the
first quarter of 1997 or for the Female On-Command Catheter for single use
insertion until mid-1997, at the earliest. There can be no assurance that a
510(k) notification for either the Male On-Command Catheter or Female On-Command
Catheter will be submitted in these time frames, nor can there be any assurance
that clearance will be obtained for single use insertion, or that subsequent
clearance for successive insertion use will be obtained. Any failure to obtain,
or delay in obtaining, such clearances would have a material adverse effect on
the Company's business, financial condition and results of operations. There
also can be no assurance that the FDA will not require a PMA for either the Male
On-Command Catheter or the Female On-Command Catheter. The Company is aware of
at least one instance in which the FDA initially advised the sponsor of a female
urological device for women with incontinence that 510(k) clearance would be the
appropriate regulatory path to market but subsequently required the sponsor to
seek PMA approval.

There can be no assurance that the Company will be able to obtain necessary
regulatory clearances or approvals for its products on a timely basis or at all,
and delays in receipt of or failure to receive such

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<PAGE> 50

clearances or approvals, the loss of previously received clearances or
approvals, limitations on intended use imposed as a condition of such clearances
or approvals, or failure to comply with existing or future regulatory
requirements would have a material adverse effect on the Company's business,
financial condition and results of operations.

Sales of medical devices outside of the United States are subject to
regulatory requirements that vary widely from country to country. The time
necessary to obtain approval for sale in other countries may be longer or
shorter than that required for FDA approval, and requirements may differ from
FDA requirements. The Company expects to initiate clinical evaluation of the
Male On-Command Catheter in Europe pursuant to an arrangement with Braun. Braun
will be responsible for management of the evaluation and obtaining regulatory
approval for the On-Command Catheter, and such approval will therefore be
outside the Company's control. Moreover, the success of such evaluation in
Europe will be dependent, in large part, on Braun's capabilities and
performance. Some countries in which the Company intends to sell devices through
distributors (for example, Germany, France and Spain) either do not currently
regulate medical devices such as the On-Command Catheter or have minimal
registration requirements. However, these countries may develop more extensive
regulations in the future that could impact the Company's ability to market the
On-Command Catheter. Some countries have historically permitted human studies
earlier in the product development cycle than the United States. Other
countries, such as Japan, have standards similar to those of the FDA. This
disparity in the regulation of medical devices may result in more rapid product
approvals in certain countries than in the United States, while approvals in
countries such as Japan may require longer than in the United States. The export
of medical devices is also subject to regulation in certain instances.

BMT, as a developer and manufacturer of Class I and Class II medical
devices, is also subject to all of the foregoing regulatory requirements of the
FDA. BMT is also registered with the FDA as a distributor, initial importer,
repackager and relabeler of medical devices. Among its activities, BMT markets a
range of proprietary and OEM products, most of which were required to receive
510(k) clearance. BMT has made modifications to one or more of its cleared
proprietary devices that BMT believes do not require the submission of new
510(k) notices. There can be no assurance, however, that the FDA would agree
with any of BMT's determinations not to submit a new 510(k) notice for any of
these changes or would not require BMT to submit a new 510(k) notice for any of
the changes made to BMT's devices. If the FDA requires BMT to submit a new
510(k) notice for any device modification, BMT may be prohibited from marketing
the modified device until the 510(k) notice is cleared by the FDA.

BMT is currently seeking certification of conformance to ISO-9001
Standards. BMT has contracted with a foreign certification services company to
act on its behalf for assessment of compliance with the provisions of the
Medical Device Directive ("MDD") of the European Union. BMT's products are
classified as Class IIA, and self certification and authorization for
application of the CE mark under Annex II of the MDD (full quality system in
conformance to EN29001 and EN46001) is expected to be sought in the fourth
quarter of 1996. There can be no assurance that BMT will obtain ISO-9001
certification or CE mark status.

PRODUCT LIABILITY AND INSURANCE

The business of the Company entails significant product liability and
recall risks. A recent United States Supreme Court decision held that product
liability may exist despite FDA approval and future court decisions may also
affect the Company's risk of product liability. Although the Company intends to
obtain product liability insurance covering the On-Command Catheter prior to
commercialization, it does not currently have such insurance which may be
expensive and may not be available on acceptable terms, if at all. BMT maintains
product liability insurance in the amount of $5 million and evaluates its
insurance requirements on an ongoing basis. The Company does not maintain
product liability insurance for products that are in clinical trials or
otherwise in the development stage. A successful product liability claim or
series of claims brought against the Company that are not covered by insurance
or are in excess of BMT's insurance coverage with respect to BMT's products
could have a

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<PAGE> 51

material adverse effect on the Company's business, financial condition and
results of operations. In addition, there can be no assurance that future
product recalls, which could have a material adverse effect on the Company's
business, financial condition and results of operations, will not occur.

EMPLOYEES

As of August 31, 1996, UroQuest employed a total of 9 full-time employees,
including 3 in research and development, 4 in administration and 2 in
regulatory. As of August 31, 1996, BMT employed a total of 197 full-time
employees and 39 part-time employees, including 171 in manufacturing, 25 in
research and development, 16 in administration, 11 in regulatory and quality
assurance, and 13 in sales and marketing. The Company believes that it has been
successful in attracting experienced and capable personnel. However, there can
be no assurance that the Company will continue to do so.

None of the Company's employees is covered by collective bargaining
agreements. The Company considers relations with its employees to be good. In
the past six years, BMT has faced two union election contests at its
manufacturing facility, each of which failed. There can be no assurances that
BMT will not face additional attempts to unionize its employees. In the event
BMT becomes subject to a collective bargaining agreement, it may experience
increased labor and related costs that could have a material adverse effect on
the Company's business, financial condition and results of operations.

FACILITIES

The Company's principal facilities consist of UroQuest's headquarters in
Salt Lake City, Utah and BMT's headquarters in Gary, Indiana. The Company
believes that its facilities are adequate for its current operations.

BMT owns a 45,000 square foot manufacturing plant located on a 20 acre
parcel of land in Gary, Indiana, on which BMT's operations are headquartered.
The plant's space is allocated as follows: approximately 12,000 square feet
dedicated to equipment-intensive production, approximately 10,000 square feet
dedicated to office and support activity, and approximately 23,000 square feet
dedicated to cleanroom production and packaging. Additionally, BMT leases an
18,600 square foot warehouse and shipping facility located approximately five
miles from the manufacturing plant. The lease runs through December 1998 and the
current annual rate on the lease is approximately $60,000.

UroQuest currently leases approximately 2,300 square feet in Salt Lake
City, Utah pursuant to a lease expiring in September 2000. The current annual
rate on the lease is $37,017, with annual increases based on the percentage
increase in the prior year's average consumer price index, beginning in October
1998. Current space is dedicated to administration, sales and marketing and
regulatory activities. UroQuest does not maintain general property or casualty
insurance with respect to its Salt Lake City facility.

LEGAL PROCEEDINGS

The Company is not currently involved in any legal proceedings, nor is the
property of the Company subject to any such proceedings. There can be no
assurance, however, that the Company will not experience material litigation
with respect to the operation of its business.

BMT

BMT manufactures and markets a series of proprietary products under the BMT
label. BMT's products consist primarily of silicone based medical devices used
in a wide variety of clinical applications, including tracheostomy and
endotracheal tubes for airway management and voice prostheses for voice
restoration. BMT also produces a range of complex catheter type products on an
OEM and private label basis for other medical device companies in areas that
include gastrointestinal feeding, esophageal management, cardiac perfusion,
hyperalimentation and dialysis.

BMT uses a small direct sales force to market its proprietary products to
medical specialists including ear, nose and throat ("ENT") surgeons, respiratory
therapists, speech pathologists and

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anesthesiologists. A group of specialty medical dealers is used in international
markets. Approximately 20% of BMT's net sales are currently derived from sales
in international markets.

The current proprietary product line includes over 400 different products
sold to approximately 9,000 customers in 40 different countries. The OEM product
line includes approximately 500 additional products sold to about 20 different
companies, most of which are Fortune 500 medical device companies. For the year
ended December 31, 1995 and the six months ended June 30, 1996, OEM sales
accounted for approximately 40% of BMT's net sales. During each of these
periods, sales to Abbott Laboratories accounted for approximately 20% of total
net sales. Although BMT intends to continue developing its OEM business, there
can be no assurance that BMT will be successful in its efforts or that its OEM
customers will react favorably to the acquisition of BMT by UroQuest. The loss
of Abbott Laboratories or other OEM customers could have a material adverse
effect on the Company's business, financial conditions and results of
operations.

The OEM business is serviced by a team of contract sales agents with
support from the BMT engineering staff. BMT is positioned as a value added
manufacturer providing complete product development, regulatory affairs,
manufacturing and packaging service. BMT emphasizes its broad expertise in
complex catheter manufacturing, silicone fabrication techniques and surface
enhancement technologies.

BMT competes with a number of other silicone fabricators for OEM and
private label business. The OEM business is highly competitive and the timing
and volume of orders can fluctuate significantly. BMT does not attempt to
compete with the high volume molded part producers, but specializes in complete
device assemblies of complex products. Because virtually all of BMT's
proprietary and OEM products incorporate silicone components, any cost increase
or other negative development associated with this material could adversely
affect its business, financial condition and results of operations.

BMT's proprietary silicone products compete primarily against non-silicone
counterparts produced by a number of large multinational companies including
Mallinkrodt Group Inc., Sims and Rusch Inc. In addition, there are a number of
smaller companies that compete in other BMT market areas, including InHealth in
voice restoration and Xomed Surgical Products, Inc. in ENT. Competition in the
markets for BMT's proprietary products is intense. Many of BMT's proprietary
products and OEM competitors have significantly greater financial, marketing,
distribution and other resources than BMT. Existing and future competitive
factors could have a material adverse effect on the Company's business,
financial condition and results of operations.

The discussion contained above regarding third-party reimbursement for
medical devices and the On-Command Catheter in particular is generally
applicable to BMT's proprietary line of products. Failure to obtain such
reimbursement for such products could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Third-Party Reimbursement."

For additional information with respect to the business and operations of
BMT, see "Risk Factors," "Selected Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
"Business -- Manufacturing, -- Research and Development, -- Patents and
Proprietary Rights, -- Government Regulation, -- Product Liability and
Insurance, -- Employees, -- Facilities, and -- Legal Proceedings."

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MANAGEMENT

EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS

The executive officers, key employees and directors of the Company are as
follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------------- --- -------------------------------------------------
<S> <C> <C>
Eric B. Hale 43 President, Chief Executive Officer and Director
Tom E. Brandt 43 Chief Operating Officer and Director Nominee
Richard C. Davis, M.D. 43 Chief Science Officer and Chairman of the Board
Gregory S. Ayers 35 Vice President, Chief Financial Officer and
Treasurer
Terrence L. Domin 49 Vice President, Administration and Secretary
J.J. Donohue 49 Vice President, Research and Development
Anne T. Carter 41 Director of Clinical & Regulatory Affairs
Jack W. Lasersohn 43 Director
Gary E. Nei(1)(2) 52 Director
Maynard Ramsey, III, M.D., Ph.D.(1) 52 Director
Elizabeth H. Weatherman(2) 36 Director
</TABLE>

- ---------------

(1) Member of the Audit Committee.

(2) Member of the Compensation Committee.

ERIC B. HALE has served as President, Chief Executive Officer and a
Director of the Company since November 1994. Before joining the Company, Mr.
Hale was President and Chief Executive Officer of AgriDyne Technologies, Inc., a
developer and manufacturer of bio-pesticides, from October 1988 until June 1994.
Prior to joining AgriDyne Technologies, Mr. Hale was Vice President and General
Manager of the Scientific Products Division of BaxterTravenol, a medical
products company, from November 1985 until September 1988. Mr. Hale held various
marketing, sales, and general management positions with American Hospital
Supply, a medical products company, from June 1975 to November 1985. Mr. Hale
holds a B.S. in Chemistry/Psychology from Utah State University.

TOM E. BRANDT is a director nominee of the Company. Mr. Brandt has been the
President and Chief Executive Officer of BMT since June 1989. Prior to joining
BMT, Mr. Brandt held various management, marketing and engineering positions
with Dow Corning Corporation, a chemical company. Mr. Brandt holds an M.B.A.
from Central Michigan University and a B.S. in Engineering from Iowa State
University. Following the closing of this Offering, Mr. Brandt will be appointed
to the Company's Board of Directors, will serve as the Company's Chief Operating
Officer and will continue as President and Chief Executive Officer of BMT.

RICHARD C. DAVIS, M.D., founded the Company and has served as Chairman of
the Board since its inception and as Chief Science Officer since November 1994.
Dr. Davis invented the On-Command Catheter and is responsible for all research
and development activities of the Company. In 1989, he founded Code Blue Medical
Corporation, a marketer of medical devices ("Code Blue") and served as Chairman
until April 1992, when Code Blue was sold to Ballard Medical Products, a medical
products company. Dr. Davis is named as an inventor in over 40 United States
patents. Dr. Davis holds an M.D. from the Medical College of Virginia and a B.S.
in Chemistry from Old Dominion University.

GREGORY S. AYERS has served as Vice President, Chief Financial Officer and
Treasurer of the Company since April 1994. From August 1991 until April 1994,
Mr. Ayers held various senior management positions with Tunstall Consulting,
Inc., a corporate financial planning and consulting firm. From September 1983
until May 1991, Mr. Ayers held various positions, including Manager, with KPMG
Peat Marwick in the United States, England and Australia. Mr. Ayers holds a B.S.
in Accounting from Stetson University. He is a Certified Public Accountant.

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TERRENCE L. DOMIN, a co-founder of the Company, has served as Vice
President, Administration and Secretary since April 1992. Previously, Mr. Domin
served as Executive Vice President and Chief Operating Officer at Code Blue.
From April 1984 until April 1987, Mr. Domin held various positions at Smith
Laboratories, a pharmaceutical company, most recently as Director, Sales and
Marketing, until its sale to The Boots Company of Nottingham, England. From June
1969 until March 1984, Mr. Domin was with Baxter Healthcare Corporation, a
medical products company, in a series of domestic and international marketing
management positions. Mr. Domin holds a B.S. in Mathematics from Loyola
University, Chicago.

J.J. DONOHUE has served as Vice President, Research and Development since
August 1996. Prior to joining the Company, Mr. Donohue was the Vice President of
Research and Development for AcroMed Corporation from May 1994 to August 1995.
From August 1992 until January 1994 he served as Vice President of Product
Development for Zimmer, Inc. and from 1984 to 1992 he was Vice President of
Research and Development for Surgitek, Inc., all of which companies are medical
device companies. Mr. Donohue holds a B.S. in Biology from Youngstown State
University.

ANNE T. CARTER has served as Director of Clinical & Regulatory Affairs of
the Company since August 1995. Prior to joining the Company, Ms. Carter was the
Director of Clinical & Regulatory Affairs at Iomed, Inc., a specialty
pharmaceutical and biomechanical company, from May 1990 until August 1995. Ms.
Carter has 20 years of diverse medical experience and 16 years of experience in
the clinical development and regulatory affairs of products in the
pharmaceutical, biotechnology, and medical device industries. Ms. Carter holds a
B.S. in Nursing from Westminster College and a B.S. in Health Education from the
University of Utah.

JACK W. LASERSOHN has served as a director of the Company since June 1995.
Mr. Lasersohn has been a Managing Director of The Vertical Group, Inc., a
private venture capital and investment management firm, since its formation in
1989 by former principals of F. Eberstadt & Co., Inc. From 1981 to 1989, he was
a Vice President and later a Managing Director of the venture capital division
of F. Eberstadt & Co., Inc. Mr. Lasersohn also serves as a director of
CardioThoracic Systems, Inc., a medical device company, VitalCom Inc., a health
care information systems company, and a number of privately-held health care
companies. He holds a J.D. from Yale University and an M.A. and B.S. from Tufts
University.

GARY E. NEI has served as a director of the Company since March 1994. Mr.
Nei is currently Chairman of the Board of B&B Publishing, a publishing company,
and has served as such since May 1995. Previously, Mr. Nei served as Chief
Executive Officer of Eon Labs, a pharmaceutical company, from February 1992
until January 1995. From November 1988 until December 1991, he served as the
Chief Executive Officer of Lyphomed, a pharmaceutical company. From 1985 until
1986, he served as Executive Vice President of Baxter International, a
healthcare company. He is also a director of Difco Inc., a biological products
company, W. H. Brady Co., an adhesives and graphics technology company, and Nei
Turner Interactive, a software company. He holds an M.B.A. from Northwestern
University and a B.A. from Ripon College.

MAYNARD RAMSEY, III, M.D., PH.D. has served as a director of the Company
since March 1994. Dr. Ramsey was a founder of Applied Medical Research, Inc., a
medical products company, which was acquired by Johnson & Johnson Co. in 1979
and became the patient monitoring business of Critikon, Inc., where he served as
Vice President of Science and Technology and Vice President of Research and
Development from 1979 until March 1994. Dr. Ramsey has received numerous awards
for his scientific and research achievements, holds 16 United States patents,
has authored 12 publications and has presented 21 papers. He holds an M.D. from
Duke University, a Ph.D. from Duke University and a B.A. in Chemistry from Emory
University.

ELIZABETH H. WEATHERMAN has served as a director of the Company since June
1995. Ms. Weatherman is a Managing Director of E.M. Warburg, Pincus & Co., Inc.,
a private investment firm, and has been with the firm since June 1988. Ms.
Weatherman is a director of Cardiotronics Systems, Inc., a medical device
company, VitalCom Inc., a health care information systems company

54
<PAGE> 55

and several privately-held health care companies. Ms. Weatherman holds an M.B.A.
from Stanford University and a B.A. from Mount Holyoke College.

All directors hold office until the next annual meeting of stockholders and
until their successors have been duly elected and qualified. The Board of
Directors has a Compensation Committee, which establishes compensation policies
and is responsible for determinations regarding salaries, incentive compensation
and other forms of compensation for directors, officers and other employees of
the Company. The Audit Committee of the Board of Directors is responsible for
reviewing the scope of and work performed by the Company's independent auditors.
Officers are elected by and serve at the discretion of the Board of Directors or
pursuant to individual employment agreements. All executive officers of the
Company intend, while employed by the Company, to devote substantially all of
their full working time and attention to the Company's business and affairs.
There are no family relationships among the directors or officers of the
Company.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

In addition to the functions and responsibilities discussed above, the
Compensation Committee also administers the Company's incentive compensation
plans. The Compensation Committee consists of Gary E. Nei and Elizabeth H.
Weatherman. Mr. Hale, who is the Company's President and Chief Executive
Officer, also participates in certain discussions and decisions regarding
salaries and incentive compensation for employees of and consultants to the
Company, except that Mr. Hale is excluded from discussions regarding his own
salary and incentive compensation.

KEY EMPLOYEES OF BMT

John M. Sandie, 45, has served as Vice President of Operations of BMT since
September 1989. Prior to joining BMT, Mr. Sandie held various production
management and engineering positions with Dow Corning. Mr. Sandie holds a B.S.
in Mechanical Engineering from Lake Superior State College.

Harry M. Kaufman, 56, has served as Director of Regulatory Affairs, Quality
Assurance and Quality Control of BMT since June 1988. Before joining BMT, Mr.
Kaufman was employed in various management positions with Alcide Corporation, a
pharmaceutical company, Pfizer, a pharmaceutical company, Baxter Healthcare, a
healthcare company, and Martin-Marietta, an aerospace company. Mr. Kaufman holds
an M.B.A. from Sacred Heart University, an M.S. in Microbiology from Arizona
State University and a B.S. in Biology from Texas Western University.

Stuart J. Marcadis, 36, has served as Director of Engineering/Research and
Development of BMT since July 1991. Mr. Marcadis was previously with DLP, a
developer and manufacturer of cardiovascular medical devices, serving as
Product/Process Development Engineering Manager from March 1989 to July 1991.
Mr. Marcadis holds a B.S. in Chemical Engineering from Rose-Hulman Institute of
Technology.

Joe H. Flacke, 41, has served as Secretary/Treasurer and Director of
Administration of BMT since November of 1988. From 1983 to 1988, Mr. Flacke was
General Production Manager for Teknar, Inc., a manufacturer of medical
electronic equipment. Prior to working at Teknar, Mr. Flacke was an electronics
technician at Washington University. Mr. Flacke holds an M.B.A. from Fontbonne
College and a B.S. in Data Processing from Washington University.

MEDICAL ADVISORY BOARD

The Company has established a Medical Advisory Board (the "Advisory Board")
consisting of six members to review and comment on the scientific aspects of the
Company and to develop suggestions for new ideas and products. Members of the
Advisory Board are appointed for a two-year term, and the Advisory Board meets
two times per year.

55
<PAGE> 56

The members of the Advisory Board are set forth below. With the exception
of Dr. Rodney Appell, who has served as a member of the Advisory Board since
August 1994, each of the members of the Advisory Board was appointed in April
1996.

Anthony W. Middleton, Jr., M.D. serves as Chairman of the Advisory Board.
Dr. Middleton is currently serving as the Chairman of the Division of Urology at
LDS Hospital in Salt Lake City, Utah, and as Chairman of the Board of UROPAC
(National Urological Political Action Committee). He recently completed a term
as national President of the American Association of Clinical Urologists. In
addition to being a full-time practicing urologist, he has published over 100
articles and papers on various aspects of urology and organized medicine. Dr.
Middleton is a graduate of Cornell University Medical College.

Rodney Appell, M.D. currently serves as Chief of Urology at the Cleveland
Clinic and is a widely published and active researcher in the area of urinary
dysfunction. In addition, Dr. Appell is the Clinical Professor of Urology at the
Louisiana State University School of Medicine. Dr. Appell holds an M.D. from
Jefferson Medical College.

Fray F. Marshall, M.D. has been a Professor of Urology and Director,
Division of Adult Urology, at The Johns Hopkins Hospital, Baltimore, Maryland
since July 1990. Dr. Marshall holds an M.D. from the University of Virginia.

Joseph A. Smith, Jr., M.D. has been the William L. Bray Professor and
Chairman of the Department of Urologic Surgery and Interim Director, Section of
Surgical Sciences, at Vanderbilt University School of Medicine, Nashville,
Tennessee since July 1991. Dr. Smith holds an M.D. from the University of
Tennessee.

Peter Scardino, M.D. has headed the Department of Urology, Baylor School of
Medicine, Houston, Texas since 1987. Dr. Scardino holds an M.D. from Duke
University.

Larry Wright, M.D. has been the Director of Microbiology Laboratory at LDS
Hospital, Salt Lake City, Utah since 1989. Dr. Wright holds an M.D. from the
University of Utah.

EXECUTIVE COMPENSATION

The following table sets forth certain information for the calendar year
ended December 31, 1995, regarding the compensation of the Company's President
and Chief Executive Officer and each of the other two most highly compensated
executive officers of the Company (the "Named Executive Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
------------ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION
- ------------------------------------------------------ ---- ------------ ---------------
<S> <C> <C> <C>
Eric B. Hale.......................................... 1995 $190,000 $ 3,600(1)
President and Chief Executive Officer
Terrence L. Domin..................................... 1995 120,000 --
Vice President, Administration
Richard C. Davis...................................... 1995 125,385 --
Chairman of the Board and
Chief Science Officer
</TABLE>

- ---------------

(1) Consists of a $600 per month automobile allowance paid by the Company for a
six-month period.

56
<PAGE> 57

OPTION GRANTS AND EXERCISES IN THE YEAR ENDED DECEMBER 31, 1995
AND FISCAL YEAR END OPTION VALUES

There were no options granted to the Named Executive Officers listed in the
Summary Compensation Table above during the fiscal year ended December 31, 1995.

The following table sets forth certain information as to options exercised
during the fiscal year ended December 31, 1995 and as to unexercised options
held at the end of such fiscal year by the Named Executive Officer of the
Company:

<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT YEAR END AT YEAR END(1)
ACQUIRED ON VALUE ----------------------------- -----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Eric B. Hale............... 85,714 $103,414 68,477 216,242 $64,773 $ 110,283
Richard C. Davis........... -- -- 53,452 53,691 $27,261 $ 27,382
Terrence L. Domin.......... -- -- 132,382 187,142 $67,515 $ 95,442
</TABLE>

- ---------------

(1) Calculated on the basis of the fair market value of the Common Stock on
December 31, 1995 of $1.21 per share, as determined by the Company's Board
of Directors, minus the exercise price.

EMPLOYMENT AGREEMENTS

The Company has entered into employment agreements with Richard C. Davis,
M.D., its Chairman of the Board and Chief Science Officer, Eric B. Hale, its
President and Chief Executive Officer, Gregory S. Ayers, its Vice President,
Chief Financial Officer and Treasurer, Terrence L. Domin, its Vice President,
Operations and Secretary and J.J. Donohue, its Vice President, Research and
Development. Dr. Davis's employment agreement provides for base pay of $130,000
per annum, plus performance bonuses based upon criteria measured by the Board of
Directors. Mr. Hale's employment agreement provides for base pay of $195,000 per
annum, performance bonuses based upon criteria measured by the Board of
Directors and severance constituting salary and benefits continuation for up to
eighteen months following termination of employment without cause. The Company's
employment agreement with Mr. Domin provides for base pay of $120,000 per annum.
The Company's employment agreement with Mr. Donohue provides for base pay of
$125,000 plus eligibility for bonuses. The Company's employment agreements with
Messrs. Davis, Domin, Ayers and Donohue provide for severance of salary and
benefits continuation for up to nine months following termination without cause.
Each of these employment agreements provides for grants of stock options. All
officers will also be entitled to acceleration of vesting of outstanding stock
and options in the event the Company is acquired. The vesting of each such
officer's options and any stock held subject to repurchase by the Company would
accelerate so that any such stock or options would be 100% vested. In addition,
in connection with the acquisition of BMT, the Company has entered into an
employment agreement with Tom E. Brandt, Chief Operating Officer, which provides
for annual base compensation of $168,000 for five years.

DIRECTOR COMPENSATION

Directors of the Company do not receive cash for services they provide as
directors. All directors of the Company, other than those designated by Warburg
and Vertical, have been granted options to purchase an aggregate of 107,143
shares of Common Stock at an exercise price of $0.70 per share. The options vest
over a five-year period, although all shares become immediately exercisable in
the event there is a change in control of the Company. See "Stock Plans -- 1994
Stock Option Plan" and "Certain Transactions." The Company does not pay
additional amounts for committee participation or special assignments of the
Board of Directors.

COMPENSATION OF MEDICAL ADVISORY BOARD MEMBERS

Pursuant to separate consulting, confidentiality and non-competition
agreements between the Company and each member of its Medical Advisory Board,
the Company has agreed to pay each such

57
<PAGE> 58

Advisory Board member $1,000 per meeting attended. In addition, in April 1996
the Company granted certain of its Advisory Board members options to purchase an
aggregate of 5,716 shares of Common Stock at a price of approximately $1.75 per
share and a cumulative exercise price of approximately $10,000.

STOCK PLANS

1994 Stock Option Plan. A total of 1,428,571 shares of Common Stock have
been reserved for issuance under the Company's 1994 Stock Option Plan (the
"Stock Plan"). As of June 30, 1996, 139,934 shares had been issued upon the
exercise of stock options granted under the Stock Plan, 1,055,674 shares were
subject to outstanding options and 232,963 shares remained available for future
grant. The Stock Plan is administered by the Compensation Committee of the Board
of Directors, which determines the terms of awards granted, including recipient,
type of award, exercise price, number of shares subject to the award and vesting
terms. Under the Stock Plan, options may be granted to employees, including
directors who are employees, and consultants. Only employees may receive
"incentive stock options," within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), which are intended to qualify for
certain tax treatment; non-employees receive "nonqualified stock options," which
do not qualify for such treatment. In the event of a change in control of the
Company, including a merger or sale of substantially all of the Company's
assets, outstanding options may be assumed by any successor corporation or may
become exercisable. The exercise price of stock options under the Stock Plan
must at least equal the fair market value of the Common Stock on the date of
grant. Options granted under the Stock Plan generally vest on a cumulative
monthly basis over five years and must be exercised within ten years.

1996 Employee Stock Purchase Plan. The Company's 1996 Employee Stock
Purchase Plan (the "Purchase Plan") was adopted by the Board of Directors in
July 1996. A total of 250,000 shares of Common Stock have been authorized for
issuance under the Purchase Plan. No shares have been issued under the Purchase
Plan. The Purchase Plan, which is intended to qualify under Section 423 of the
Code, will be administered by the Compensation Committee of the Board of
Directors. Under the Purchase Plan, the Company will withhold a specified
percentage (not to exceed 15%) of each salary payment to participating employees
over certain offering periods. Any employee who has been employed for at least
six months and who is currently employed for at least 20 hours per week or for
at least five consecutive months in a calendar year, either by the Company or by
a majority-owned subsidiary of the Company, will be eligible to participate in
the Purchase Plan. Unless the Compensation Committee of the Board of Directors
determines otherwise, each offering period will run for six months. The first
offering period will commence approximately 30 days after the date of this
Prospectus. New six-month offering periods will commence approximately every six
months thereafter. The price at which Common Stock will be purchased under the
Purchase Plan is equal to 85% of the fair market value of the Common Stock on
the first day of the applicable offering period or the last day of the
applicable offering period, whichever is lower. Employees may end their
participation in the offering at any time during the offering period and may
decrease their participation in the offering at any time during the offering
period on one occasion. Participation ends automatically on termination of
employment with the Company. The number of shares that a participant may
purchase in any offering period is determined by dividing the payroll deductions
accumulated during the offering period by the purchase price. However, no person
may purchase shares under the Purchase Plan to the extent such person would own
5% or more of the total combined value or voting power of all classes of the
capital stock of the Company or of any of its subsidiaries, or to the extent
that such person's rights to purchase stock under all employee stock purchase
plans would accrue at a rate that exceeds $25,000 worth of stock for any
calendar year, determined as of the first day of the applicable offering period.
In the event of a merger of the Company with or into another corporation, or the
sale of all or substantially all of the assets of the Company, the offering
period then in progress will be shortened. The Board of Directors may amend the
Purchase Plan at any time. The Purchase Plan shall be in effect for a term of
ten years unless terminated earlier pursuant to its terms.

58
<PAGE> 59

LIMITATIONS ON DIRECTORS' LIABILITY AND INDEMNIFICATION

The Company's Certificate of Incorporation provides that the Company's
directors will not be liable for monetary damages for breach of the directors'
fiduciary duty of care to the Company and its stockholders. This provision in
the Certificate of Incorporation does not eliminate the duty of care, and in
appropriate circumstances equitable remedies such as an injunction or other
forms of non-monetary relief would remain available under Delaware law. Each
director will continue to be subject to liability for breach of the director's
duty of loyalty to the Company, for acts or omissions not in good faith or
involving intentional misconduct or knowing violations of law, for acts or
omissions that the director believes to be contrary to the best interests of the
Company or its stockholders, for any transaction from which the director derived
improper personal benefit, for acts or omissions involving a reckless disregard
for the director's duty to the Company or its stockholders when the director was
aware or should have been aware of a risk of serious injury to the Company or
its stockholders, for acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the director's duty to the Company
or its stockholders, for improper transactions between the director and the
Company and for improper distributions to stockholders and loans to directors
and officers. This provision also does not affect a director's responsibilities
under any other laws, such as the federal securities laws or state or federal
environmental laws.

The Company's Certificate of Incorporation and Bylaws provide that the
Company will indemnify its directors, officers, employees and other agents to
the fullest extent permitted by Delaware law. The Company is also empowered
under its Bylaws to enter into indemnification contracts with its directors and
officers and to purchase insurance on behalf of any person it is required or
permitted to indemnify. Pursuant to this provision, the Company has entered into
indemnity agreements with each of its directors and officers.

At present, there is no pending litigation or proceeding involving a
director or officer of the Company in which indemnification is required or
permitted, and the Company is not aware of any threatened litigation or
proceeding that may result in a claim for such indemnification.

CERTAIN TRANSACTIONS

In August 1992, UroQuest issued 1,285,714 shares of Common Stock and
142,857 shares of Non-Voting Common Stock to Richard C. Davis and to DD Trust, a
trust established by Richard C. Davis on behalf of his children, respectively,
for patents and trademarks nominally valued at $5,000. Dr. Davis, a founder of
the Company, is the Company's Chairman of the Board and Chief Science Officer.
In January 1994, UroQuest issued 1,285,714 shares of Voting Common Stock and
142,857 shares of Non-Voting Common Stock to Richard C. Davis and to DD Trust,
respectively, for all of the outstanding equity of UroCath Corporation, which
was transferred by Dr. Davis and DD Trust to UroQuest. All shares owned by Dr.
Davis personally have been transferred to a trust established on his behalf and
controlled by Dr. Davis.

During 1994, UroQuest was assigned patents and trademarks totalling
$250,000 by Excalibur Engineering Corporation for which UroQuest issued a
$250,000 non-interest bearing note. Excalibur is controlled by Dr. Davis. As the
note was non-interest bearing, UroQuest recorded the note net of a $6,840
discount calculated at 8% over the expected term of the note. The note was paid
in full and the discount completely amortized by December 31, 1995.

In June 1994, the Board of Directors of the Company approved the issuance
of options to purchase an aggregate of 107,143 shares of Common Stock at $0.70
per share to certain members of the Board of Directors, which shares vest over a
five-year term tied to service on the Board of Directors. All shares will be
exercisable in full in the event there is a change in control of the Company.

In June 1994, corporations were formed by certain stockholders of the
Company for the purpose of transferring non-core business assets into separate
entities. Cash and other assets totalling $235,008

59
<PAGE> 60

were exchanged with those companies for 8% promissory notes. The notes are
payable on demand. In 1994, a valuation allowance was established to account for
possible non-collection of the notes. All accrued interest on the notes
receivable is provided for monthly.

In December 1994, Maynard Ramsey, a director of the Company, purchased
$150,000 of UroQuest's 12% Secured Promissory Notes due December 1996. In
December 1994, Donald P. Sauey, then a director of the Company, purchased
$100,000 of UroQuest's 12% Secured Promissory Notes due December 1996.

In June 1995, Dr. Davis, UroQuest, Warburg and Vertical entered into a
Stock Purchase Agreement dated June 15, 1995 (the "Stock Purchase Agreement")
pursuant to which Dr. Davis sold, at $0.0035 per share, 1,080,000 shares and
120,000 shares of Common Stock to Warburg and Vertical, respectively, in
conjunction with Warburg's and Vertical's purchase from UroQuest, at $3.50 per
share, of 565,714 shares and 62,857 shares, respectively, of Series D
Convertible Preferred Stock. In conjunction with the transaction, UroQuest
issued a warrant to Warburg to purchase 1,428,571 shares of Series D Convertible
Preferred Stock at $3.50 per share. Warburg has agreed that Vertical shall be
entitled to purchase 142,857 of the shares covered by the warrant. Pursuant to a
letter agreement dated June 15, 1995 between UroQuest and Dr. Davis, and in
consideration of Dr. Davis's sale of such shares of Common Stock to Warburg and
Vertical, UroQuest agreed to indemnify Dr. Davis from and against any
liabilities arising from or related to such sale.

Pursuant to a Termination and Modification Agreement dated September 30,
1996, as amended October 23, 1996 (the "Termination Agreement"), among the
Company, Dr. Davis, Warburg and Vertical, the Stock Purchase Agreement will be
terminated upon the closing of this Offering. Upon the closing of this Offering,
Warburg and Vertical have agreed to exercise the warrant for 1,285,714 shares
and 142,857 shares of Common Stock, respectively, at $3.50 per share, and Dr.
Davis has agreed to sell to Warburg and Vertical 257,143 shares and 28,571
shares of Common Stock, respectively, at $0.0035 per share.

Pursuant to the Termination Agreement, so long as each of Warburg and
Vertical beneficially owns 50% of the Common Stock owned as of the closing of
this Offering, it is entitled to designate three directors to the Board of
Directors. The parties to the Termination Agreement have agreed that the size of
the Board of Directors will not be increased to more than eleven members without
the prior written consent of each of Warburg and Vertical. If each of Warburg
and Vertical designated three directors, they would collectively be able to
control the direction, management and policies of the Company. In addition, the
parties agreed to amend the Right of First Refusal and Co-Sale Agreement dated
June 15, 1995 among the parties (the "Co-Sale Agreement") pursuant to which
Warburg and Vertical have a first right of refusal to purchase shares of Common
Stock owned by Dr. Davis and a right to sell their shares if Dr. Davis receives
an offer to purchase his shares in certain circumstances. Pursuant to the
Co-Sale Agreement, as amended, all but 200,000 shares owned by Dr. Davis are
subject to the Co-Sale Agreement upon the closing of this Offering. On June 15,
1997, an additional 100,000 shares will be released from the restrictions of the
Co-Sale Agreement. Commencing 18 months from the closing of this Offering and
every three months thereafter, an additional amount equal to one percent of the
number of outstanding shares of the Common Stock will be released from the
restrictions of the Co-Sale Agreement.

All future transactions, including any loans from the Company to its
officers, directors, principal stockholders or affiliates, will be approved by a
majority of the Board of Directors, including a majority of the independent and
disinterested members of the Board of Directors or, if required by law, a
majority of disinterested stockholders, and will be on terms no less favorable
to the Company than could be obtained from unaffiliated third parties.

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<PAGE> 61

PRINCIPAL STOCKHOLDERS

The following table sets forth information known to the Company with
respect to the beneficial ownership of its Common Stock as of June 30, 1996,
after giving effect to each of the events that will occur upon or prior to the
closing of this Offering, and as adjusted to reflect the sale of Common Stock
offered by the Company hereby at the initial public offering price of $6.00 per
share, for (i) each person who is known by the Company to own beneficially more
than 5% of the Common Stock, (ii) each of the Company's directors and its
director nominee, (iii) each Named Executive Officer of the Company and (iv) all
directors and executive officers as a group.

<TABLE>
<CAPTION>
PERCENT
BENEFICIALLY OWNED
--------------------------------
NUMBER OF SHARES PERCENT BEFORE PERCENT AFTER
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) OFFERING OFFERING
- -------------------------------------------------- --------------------- -------------- -------------
<S> <C> <C> <C>
Warburg, Pincus Investors, L.P.(2)................ 3,188,571 37.7% 27.0%
466 Lexington Ave., 10th Floor
New York, NY 10017
Elizabeth H. Weatherman(3)........................ 3,188,571 37.7% 27.0%
Warburg, Pincus Investors, L.P.
466 Lexington Ave., 10th Floor
New York, NY 10017
Richard C. Davis, M.D.(4)......................... 1,149,644 13.5% 9.7%
4820 Longwater Way
Tampa, FL 33615
Thomas E. Brandt(5)............................... 1,605,000 19.0% 13.6%
206 Anderson Drive,
Valparaiso, IN 46383
Eric B. Hale(6)................................... 175,810 2.1% 1.5%
Terrence L. Domin(7).............................. 186,810 2.2% 1.6%
Jack W. Lasersohn(8).............................. 354,285 4.2% 3.0%
Maynard Ramsey, III, M.D., Ph.D.(9)............... 94,288 1.1% *
Gary E. Nei(10)................................... 60,000 * *
--------- ---- ----
All directors and executive officers as a group
(9 persons)(11)................................. 6,901,511 76.9% 56.0%
========= ==== ====
</TABLE>

- ---------------
* Less than 1%.

(1) "Beneficial owner" means generally any person who, directly or indirectly,
has or shares voting power or investment power with respect to a security.
Unless otherwise indicated in these footnotes, or pursuant to applicable
state community property laws, each stockholder has sole voting and
investment power with respect to the shares beneficially owned. Percentages
are determined based upon 8,468,626 shares of Common Stock outstanding on
June 30, 1996, or issuable upon exercise of warrants and options
exercisable within 60 days of June 30, 1996.

(2) Represents 3,188,571 shares of Common Stock held by Warburg, Pincus
Investors, L.P. ("Warburg"). The sole general partner of Warburg is
Warburg, Pincus & Co., a New York general partnership ("WP"). Lionel I.
Pincus is the managing partner of WP and may be deemed to control it. E.M.
Warburg, Pincus & Company, a New York general partnership that has the same
general partners as WP ("EM Warburg"), manages Warburg. WP has a 20%
interest in the profits of Warburg and through its wholly owned subsidiary,
E.M. Warburg, Pincus & Co., Inc. ("Warburg, Pincus") owns 1.13% of the
limited partnership interests in Warburg. Elizabeth H. Weatherman, a
director of the Company, is a Managing Director of Warburg, Pincus and a
general partner of WP, and EM Warburg. As such, Ms. Weatherman may be
deemed to have an indirect pecuniary interest (within the meaning of Rule
16a-1 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) in an indeterminate portion of the shares beneficially owned by
Warburg, WP and Warburg, Pincus.

(3) All of the shares indicated as owned by Ms. Weatherman are owned directly
by Warburg and are included because of her affiliation with Warburg. As
such, Ms. Weatherman may be deemed to have

61
<PAGE> 62

an indirect pecuniary interest in an indeterminate portion of the shares
beneficially owned by Warburg. Ms. Weatherman disclaims beneficial
ownership of these shares within the meaning of Rule 13d-3 under the
Exchange Act.

(4) Represents 1,085,715 shares of Common Stock held by The Richard C. Davis,
Jr. 1993 Revocable Trust, of which Dr. Davis is a trustee and over which
Dr. Davis has investment and voting control. Dr. Davis disclaims beneficial
ownership of these shares. Also includes 63,929 shares of Common Stock
issuable upon exercise of stock options exercisable within 60 days of June
30, 1996.

(5) Represents 1,605,000 shares of Common Stock to be issued at the closing of
this Offering to Mr. Brandt as a stockholder of BMT in connection with the
acquisition of BMT.

(6) Includes 90,096 shares of Common Stock issuable upon exercise of stock
options exercisable within 60 days of June 30, 1996.

(7) Includes 186,667 shares of Common Stock issuable upon exercise of stock
options exercisable within 60 days of June 30, 1996.

(8) Represents 354,285 shares of Common Stock held by Vertical Fund Associates,
L.P. ("Vertical"). The sole general partner of Vertical is The Vertical
Group, L.P. ("Vertical Group"). Jack W. Lasersohn, a director of the
Company, is a General Partner of the Vertical Group. As such, Mr. Lasersohn
may be deemed to have an indirect pecuniary interest in an indeterminate
portion of the shares beneficially owned by Vertical Group. Mr. Lasersohn
disclaims beneficial ownership of these shares within the meaning of Rule
13d-3 under the Exchange Act.

(9) Includes 62,514 shares of Common Stock issuable upon exercise of stock
options exercisable within 60 days of June 30, 1996. Also includes 8,918
shares of Common Stock issuable upon exercise of warrants exercisable
within 60 days of June 30, 1996.

(10) Includes 60,000 shares of Common Stock issuable upon exercise of stock
options exercisable within 60 days of June 30, 1996.

(11) Includes 500,706 shares of Common Stock issuable upon exercise of stock
options exercisable within 60 days of June 30, 1996. Also includes 8,918
shares of Common Stock issuable upon exercise of warrants exercisable
within 60 days of June 30, 1996.

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company will consist of 31,000,000
shares of Common Stock, $.001 par value and 16,000,000 shares of Preferred
Stock, $.001 par value, after giving effect to the restatement of the Company's
Certificate of Incorporation upon the closing of this Offering. The following
summaries of certain provisions of the Common Stock and Preferred Stock do not
purport to be complete and are subject to, and qualified in their entirety by,
the provisions of the Company's Certificate of Incorporation, which is included
as an exhibit to the Registration Statement of which this Prospectus forms a
part, and by applicable law.

COMMON STOCK

As of June 30, 1996, there were 8,468,636 shares of Common Stock
outstanding held by 106 stockholders of record.

The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. In the election of directors,
holders of Common Stock are not entitled to cumulative voting. As the Company's
directors, executive officers and entities affiliated with them will, in the
aggregate, beneficially own approximately 56% of the Common Stock following the
completion of this Offering, they would be able, if acting together, to control
all matters requiring approval by the stockholders, including the election of
the Board of Directors. The holders of Common Stock are entitled to receive
ratably such dividends, if any, as may be declared from time to time by the
Board of Directors out of funds legally available for that purpose. In the event
of a liquidation, dissolution or winding up of the Company, the holders of
Common Stock are entitled to share ratably in all assets remaining after payment
of liabilities, if any. The Common Stock has no preemptive or conversion rights
or other subscription rights. There are no redemption or sinking fund provisions
applicable to the Common Stock. All outstanding shares of Common Stock are fully
paid and nonassessable, and the

62
<PAGE> 63

shares of Common Stock to be issued upon the closing of this Offering will be
fully paid and non-assessable.

Following the completion of this Offering, the Company will have
outstanding warrants to purchase an aggregate of 20,935 shares of Common Stock.
The weighted average exercise price of these warrants is $3.50 per share, and
these warrants expire 30 days subsequent to the closing of this Offering.

PREFERRED STOCK

The Board of Directors has the authority, without action by the
stockholders, to designate and issue Preferred Stock in one or more series and
to designate the rights, preferences and privileges of each series, any or all
of which may be greater than the rights of the Common Stock. It is not possible
to state the actual effect of the issuance of any shares of Preferred Stock upon
the rights of holders of the Common Stock until the Board of Directors
determines the specific rights of the holders of such Preferred Stock. However,
the effects might include, among other things, restricting dividends on the
Common Stock, diluting the voting power of the Common Stock, impairing the
liquidation rights of the Common Stock and delaying or preventing a change in
control of the Company without further action by the stockholders. Upon the
closing of this Offering, all outstanding shares of Preferred Stock of the
Company will convert automatically into shares of Common Stock. The Company has
no present plans to issue any shares of Preferred Stock.

REINCORPORATION IN DELAWARE

In October 1996, the Company reincorporated in Delaware in connection with
this Offering. The Company believes that Delaware law provides flexibility and
that Delaware courts have particular expertise with matters affecting public
companies and their stockholders. Except as otherwise noted, all information in
this Prospectus reflects the occurrence of the Reincorporation.

REGISTRATION RIGHTS OF CERTAIN HOLDERS

Upon expiration of certain lock-up agreements referred to in "Shares
Eligible for Future Sales" below, the holders of approximately 5,914,406 shares
of Common Stock (including shares issuable upon exercise of certain options and
warrants) (the "Registrable Securities") or their transferees will be entitled
to certain rights with respect to the registration of such shares under the
Securities Act. These rights are provided under the terms of a Third Amended and
Restated Stockholders Agreement dated as of September 30, 1996 (the
"Stockholders Agreement") between the Company and the holders of Registrable
Securities. Subject to certain limitations in the Stockholders Agreement,
Warburg and Vertical, together owning a total of 3,542,856 shares of the
Registrable Securities, may require that the Company use its best efforts to
register their shares for public resale on up to four occasions pursuant to
certain demand registration rights. If the Company registers any of its Common
Stock either for its own account or for the account of other security holders,
all holders of Registrable Securities, including Warburg and Vertical, are
entitled to include their shares of Common Stock in the registration, subject to
the ability of the underwriters to limit the number of shares included in the
offering. All registration expenses must be borne by the Company and all selling
expenses relating to Registrable Securities must be borne by the holders of the
securities being registered. Pursuant to the terms of the Stockholders
Agreement, the holders of Registrable Securities have waived their rights to
include their shares in this Offering.

DELAWARE ANTI-TAKEOVER LAW AND CERTAIN PROVISIONS

The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"), an anti-takeover law. Under Section 203
certain "business combinations" between a Delaware corporation, whose stock
generally is publicly traded or held of record by more than 2,000 stockholders,
and an interested stockholder are prohibited for a three-year period following
the date that such stockholder became an interested stockholder, unless: (i) the
corporation has elected in its certificate of incorporation not to be governed
by Section 203; (ii) the business combination was

63
<PAGE> 64

approved by the Board of Directors of the corporation before the other party to
the business combination became an interested stockholder; (iii) upon
consummation of the transaction that made it an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the corporation
outstanding at the commencement of the transaction (excluding voting stock owned
by directors who are also officers or held in employee benefit plans in which
the employees do not have a confidential right to tender or vote stock held by
the plan); or (iv) the business combination was approved by the Board of
Directors of the corporation and ratified by 66 2/3% of the voting stock which
the interested stockholder did not own. The three-year prohibition also does not
apply to certain business combinations proposed by an interested stockholder
following the announcement or notification of certain extraordinary transactions
involving the corporation and a person who had not been an interested
stockholder during the previous three years or who became an interested
stockholder with the approval of a majority of the corporation's directors. The
term "business combination" is defined generally to include mergers or
consolidations between a Delaware corporation and an interested stockholder,
transactions with an interested stockholder involving the assets or stock of the
corporation or its majority-owned subsidiaries and transactions which increase
an interested stockholder's percentage ownership of stock. The term "interested
stockholder" is defined generally as those stockholders who become beneficial
owners of 15% or more of a Delaware corporation's voting stock. These
provisions, as well as the Board of Directors' ability to issue Preferred Stock
may have the effect of deterring hostile takeovers or delaying changes in
control or management of the Company.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services, L.L.C. Its telephone number is (415) 954-9512.

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this Offering, there has been no market for the Common Stock of
the Company. Future sales of substantial amounts of Common Stock in the public
market could materially adversely affect market prices prevailing from time to
time. As described below, the majority of shares currently outstanding will not
be available for public resale immediately after this Offering due to certain
contractual and legal restrictions on resale. Sales of substantial amounts of
Common Stock of the Company in the public market after the restrictions lapse
could materially adversely affect the prevailing market price and the ability of
the Company to raise equity capital in the future.

Upon the completion of this Offering, the Company will have 11,818,626
shares of Common Stock outstanding, assuming no exercise of options or warrants
after June 30, 1996 (other than warrants to purchase a total of 1,428,571 shares
of Common Stock to be exercised by Warburg and Vertical upon the closing of this
Offering). Of these shares, the 3,350,000 shares sold in this Offering will be
freely tradable without restriction under the Securities Act, unless held by
"affiliates" of the Company, as that term is defined in Rule 144 under the
Securities Act. The remaining 8,468,626 shares of Common Stock held by existing
stockholders are "restricted securities" as that term is defined in Rule 144
under the Securities Act, and were issued and sold by the Company in reliance on
exemptions from the registration requirements of the Securities Act. These
shares may be sold in the public market only if registered, or pursuant to an
exemption from registration such as Rule 144, 144(k) or 701 under the Securities
Act. All executive officers, directors and certain stockholders of the Company,
holding in aggregate 8,342,465 shares of Common Stock, are subject to lock-up
agreements which provide that they will not offer, sell, contract to sell, grant
any option to purchase or otherwise dispose of, or agree to dispose of, directly
or indirectly, any shares of Common Stock, options or warrants to acquire shares
of Common Stock or securities exchangeable for or convertible into Common Stock
owned by them for a period of 180 days after the date of this Prospectus,
without the prior written consent of Dillon, Read & Co. Inc. The Company has
entered into a similar agreement, except that the Company may grant options and
issue stock under its current stock option and stock purchase plans and pursuant
to other currently outstanding options.

64
<PAGE> 65

As of June 30, 1996, 1,055,674 shares were subject to outstanding options
and 20,935 shares were subject to outstanding warrants. All of these shares are
subject to the lock-up agreements described above. Approximately 30 days after
the date of this Prospectus, the Company intends to file a Registration
Statement on Form S-8 to register all shares issuable under the Company's 1994
Stock Option Plan (including shares subject to then outstanding options) and
1996 Employee Stock Purchase Plan, thus permitting the resale of such shares in
the public market, subject to Rule 144 volume limitations applicable to
affiliates, without restriction under the Securities Act upon expiration of the
applicable lock-up agreements. Upon expiration of such lock-up agreements,
667,186 shares subject to such options will be vested.

Upon expiration of the 180-day lock-up agreements, approximately 658,979
shares of Common Stock held by existing stockholders will be eligible for
immediate public resale without restriction pursuant to Rule 144(k) or Rule 701,
and approximately 2,938,647 shares held by existing stockholders will be
eligible for public resale, subject to the volume limitation and other
restrictions of Rule 144. The remaining 4,871,000 shares held by existing
stockholders will become eligible for public resale pursuant to Rule 144 upon
the expiration of their two-year holding periods. The holders of approximately
5,914,406 shares of Common Stock (including shares issuable upon exercise of
certain options and warrants) or their transferees will be entitled to
registration rights with respect to such shares upon the release of their
respective lock-up agreements. The number of shares sold in the public market
could increase if such rights are exercised.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least two
years (including the holding period of any prior owner, except an affiliate) is
entitled to sell in "broker's transactions" or to market makers, within any
three-month period commencing 90 days after the date of this Prospectus, a
number of shares that does not exceed the greater of (i) one percent of the
number of shares of Common Stock then outstanding (approximately 111,900 shares
immediately after this Offering) or (ii) the average weekly trading volume of
the Common Stock during the four calendar weeks preceding the required filing of
a Form 144 with respect to such sale. Sales under Rule 144 are generally subject
to certain manner of sale provisions and notice requirements and to the
availability of current public information about the Company. Under Rule 144(k),
a person who is not deemed to have been an affiliate of the Company at any time
during the 90 days preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least three years, is entitled to sell such shares
without having to comply with the manner of sale, public information, volume
limitation or notice provisions of Rule 144. Under Rule 701 under the Securities
Act, persons who purchase shares upon exercise of options granted prior to the
effective date of this Offering are entitled to sell such shares 90 days after
the effective date of this Offering in reliance on Rule 144, without having to
comply with the holding period requirements of Rule 144 and, in the case of
non-affiliates, without having to comply with the public information, volume
limitation or notice provisions of Rule 144.

Any employee, officer or director or a consultant to the Company who
purchased his or her shares pursuant to a written compensatory plan or contract
is entitled to rely on the resale provisions of Rule 701, which permits
non-affiliates to sell their Rule 701 shares without having to comply with the
public information, holding period, volume limitation or notice provisions of
Rule 144 and permits affiliates to sell their Rule 701 shares without having to
comply with Rule 144's holding period restrictions, in each case commencing 90
days after the effective date of this Offering.

The Securities and Exchange Commission has recently proposed reducing the
Rule 144 holding period to one year and the Rule 144(k) holding period to two
years. There can be no assurance as to when or whether such rule changes will be
enacted. If enacted, such modifications will have a material effect on the times
when shares of the Common Stock become eligible for public resale.

65
<PAGE> 66

UNDERWRITING

The names of the Underwriters of the shares of Common Stock offered hereby
and the aggregate number of shares which each has severally agreed to purchase
from the Company (subject to the terms and conditions specified in the
Underwriting Agreement) are as follows:

<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
------------------------------------------------------------ ----------------
<S> <C>
Dillon, Read & Co. Inc. .................................... 1,115,000
Prudential Securities Incorporated.......................... 1,115,000
Bear, Stearns & Co. Inc..................................... 60,000
Donaldson, Lufkin & Jenrette Securities Corporation......... 60,000
A.G. Edwards & Sons, Inc. .................................. 60,000
Lazard Freres & Co. LLC..................................... 60,000
Lehman Brothers Inc. ....................................... 60,000
Montgomery Securities....................................... 60,000
Oppenheimer & Co., Inc. .................................... 60,000
Robertson, Stephens & Company LLC........................... 60,000
Salomon Brothers Inc........................................ 60,000
Schroder Wertheim & Co. Incorporated........................ 60,000
UBS Securities LLC.......................................... 60,000
Sanford C. Bernstein & Co., Inc. ........................... 30,000
Cowen & Company............................................. 30,000
Dain Bosworth Incorporated.................................. 30,000
Fahnestock & Co. Inc. ...................................... 30,000
Furman Selz LLC............................................. 30,000
Hanifen, Imhoff Inc. ....................................... 30,000
J.J.B. Hilliard, W.L. Lyons, Inc. .......................... 30,000
Jefferies & Company......................................... 30,000
Josephthal Lyon & Ross Incorporated......................... 30,000
Needham & Company, Inc. .................................... 30,000
Piper Jaffray Inc. ......................................... 30,000
Wessels, Arnold & Henderson................................. 30,000
Auerbach Pollak & Richardson Inc. .......................... 20,000
National Securities Corp. .................................. 20,000
David A. Noyes & Company.................................... 20,000
Pennsylvania Merchant Group Ltd............................. 20,000
Wellington (H.G.) & Co. Inc. ............................... 20,000
----------------
Total............................................. 3,350,000
==============
</TABLE>

The Managing Underwriters are Dillon, Read & Co. Inc. and Prudential
Securities Incorporated.

If any of the shares of Common Stock offered hereby are purchased by the
Underwriters, all such shares will be so purchased. The Underwriting Agreement
contains certain provisions whereby if any Underwriter defaults in its
obligation to purchase such shares and if the aggregate obligations of the
Underwriters so defaulting do not exceed 10% of the shares offered hereby, the
remaining Underwriters, or some of them, must assume such obligations.

The shares of Common Stock offered hereby are being offered severally by
the Underwriters for sale at the price set forth on the cover page hereof, or at
such price less a concession not to exceed $0.24 per share on sales to certain
dealers. The Underwriters may allow, and such dealers may reallow, a concession
not to exceed $0.10 per share on sales to certain other dealers. The offering of
the shares of Common Stock is made for delivery when, as, and if accepted by the
Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offer without notice. The Underwriters reserve the right to
reject any order for the purchase of the shares. After the shares are released
for sale

66
<PAGE> 67

to the public, the public offering price, the concession and the reallowance may
be changed by the Managing Underwriters.

The Company has granted to the Underwriters an option to purchase up to an
additional 502,500 shares of Common Stock on the same terms per share. If the
Underwriters exercise this option, each of the Underwriters will have a firm
commitment, subject to certain conditions, to purchase approximately the same
proportion of the aggregate shares so purchased as the number of shares to be
purchased by it shown in the above table bears to the total number of shares in
such table. The Underwriters may exercise such option on or before the thirtieth
day from the date of the public offering of the shares offered hereby and only
to cover over-allotments made of the shares in connection with this Offering.

The Company, its executive officers and directors and certain stockholders,
holding in aggregate 8,342,465 shares of Common Stock, have agreed that they
will not, without the prior written consent of Dillon, Read & Co. Inc., sell,
contract to sell, grant any option to sell, transfer or otherwise dispose of,
directly or indirectly, any shares of the Common Stock, or any securities
convertible into, or exercisable or exchangeable for, Common Stock or warrants
or other rights to purchase Common Stock, prior to the expiration of 180 days
from the date of the consummation of this Offering, except (i) shares of Common
Stock issued upon the exercise of options issued under the Company's existing
stock plans and (ii) the grant of options and other rights to purchase Common
Stock to the Company's employees, officers and directors under its existing
stock plans.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including any liabilities under the Securities Act, or to
contribute to payments the Underwriters may be required to make in respect
thereof.

Prior to this Offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock was determined by
negotiation between the Company and the Managing Underwriters. Among the factors
considered in determining the initial public offering price were prevailing
market and economic conditions, projected revenues and earnings of the Company,
market valuations of other companies engaged in activities similar to the
Company, estimates of the business potential and prospects of the Company, the
present state of the Company's business, the Company's management and other
factors deemed relevant.

The Underwriters do not intend to confirm sales to accounts over which they
exercise discretionary authority.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by Holland & Hart LLP, Salt Lake City, Utah. Certain legal matters will
be passed upon for the Underwriters by Cooley Godward LLP, Menlo Park,
California.

EXPERTS

The consolidated financial statements of the Company as of December 31,
1994 and 1995 and for each of the years in the three-year period ended December
31, 1995, and for the period from April 8, 1992 (inception) to December 31,
1995, have been included herein and in the Registration Statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.

The consolidated financial statements of BMT as of December 31, 1994 and
1995 and for each of the years in the three-year period ended December 31, 1995,
have been included herein and in the Registration Statement in reliance upon the
report of Grant Thornton LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.

67
<PAGE> 68

The statements in this Prospectus under the captions "Risk
Factors -- Reliance on Patents and Protection of Proprietary Technology" and
"Business -- Patents and Proprietary Rights" as they relate to UroQuest have
been reviewed and approved by Griffin, Butler, Whisenhunt & Kurtossy, Arlington,
Virginia, special patent counsel to UroQuest, as experts in such matters, and as
they relate to BMT have been reviewed and approved by Emrich & Dithmar, special
patent counsel to BMT, as experts in such matters, and such statements are
included herein in reliance upon such review and approval. Griffin, Butler,
Whisenhunt & Kurtossy has represented both UroQuest and Richard C. Davis,
Chairman of the Board and Chief Science Officer of the Company, in the past in
intellectual property matters, and it is anticipated that it will continue to
represent both of these parties in the future.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1
including amendments thereto, under the Securities Act with respect to the
shares of Common Stock offered hereby. This Prospectus, which is part of the
Registration Statement, does not contain all the information set forth in the
Registration Statement and the exhibits and schedules filed therewith. For
further information with respect to the Company and such Common Stock, reference
is made to the Registration Statement and to the exhibits and schedules filed
therewith. Statements contained in this Prospectus as to the contents of any
contract or other document referred to are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference. A copy of the Registration Statement,
including the exhibits and schedules filed therewith, may be inspected by anyone
without charge at the public reference facilities maintained by the Commission,
at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549,
or at its regional offices located at CitiCorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, Suite 1300,
New York, New York 10048 and copies of all or any part thereof may be obtained
from such offices of the Commission, upon payment of certain fees prescribed by
the Commission. In addition, this information may be accessed from the
Commission's website at http://www.sec.gov.

Prior to this Offering, the Company has not been subject to the reporting
requirements of the Exchange Act. After completion of this Offering, the Company
intends to comply with such requirements, including the distribution to its
stockholders of an annual report containing audited financial statements.

68
<PAGE> 69

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED):
Pro Forma Statement of Operations for the year ended December 31, 1995
(Unaudited)..................................................................... F-3
Pro Forma Statement of Operations for the six months Ended June 30, 1996
(Unaudited)..................................................................... F-4
Pro Forma Balance Sheet as of June 30, 1996 (Unaudited)............................ F-5
Notes to Pro Forma Financial Statements (Unaudited)................................ F-6
UROQUEST MEDICAL CORPORATION:
Independent Auditors' Report....................................................... F-8
Consolidated Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996
(Unaudited)..................................................................... F-9
Consolidated Statements of Operations for each of the years in the three year
period ended December 31, 1995 and for the period from April 8, 1992 (date of
inception) to December 31, 1995 and for the six months ended June 30, 1995 and
1996 (Unaudited) and for the period from April 8, 1992 (date of inception) to
June 30, 1996 (Unaudited)....................................................... F-10
Consolidated Statements of Stockholders' Equity for the period from April 8, 1992
(date of inception) to December 31, 1995 and for the six months ended June 30,
1996 (Unaudited)................................................................ F-11
Consolidated Statements of Cash Flows for each of the years in the three year
period ended December 31, 1995 and for the period from April 8, 1992 (date of
inception) to December 31, 1995 and for the six months ended June 30, 1995 and
1996 (Unaudited) and for the period from April 8, 1992 (date of inception) to
June 30, 1996 (Unaudited)....................................................... F-12
Notes to Consolidated Financial Statements......................................... F-13
BMT, INC.:
Report of Independent Certified Public Accountants................................. F-20
Consolidated Balance Sheets as of December 31, 1994 and 1995,
and June 30, 1996 (Unaudited)................................................... F-21
Consolidated Statements of earnings for the years ended December 31, 1993, 1994 and
1995, and for the six months ended June 30, 1995 and 1996 (Unaudited)........... F-22
Consolidated Statement of Changes in Stockholders' Equity for the years ended
December 31, 1993, 1994 and 1995 and for the six months ended June 30, 1996
(Unaudited)..................................................................... F-23
Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1994
and 1995, and for the six months ended June 30, 1995 and 1996 (Unaudited)....... F-24
Notes to Consolidated Financial Statements......................................... F-25
</TABLE>

F-1
<PAGE> 70

UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)

PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)

UroQuest Medical Corporation was formed in April 1992 to design, develop
and market advanced products for the management and diagnosis of both male and
female urological disorders. UroQuest has entered into a definitive agreement to
acquire BMT, Inc. ("BMT"), pursuant to which BMT will merge with and into an
acquisition subsidiary of UroQuest. Pursuant to the merger, shareholders of BMT
will receive, in the aggregate, $10 million cash and 2,500,000 newly issued
shares of Common Stock. The consummation of the acquisition of BMT by UroQuest
is contingent upon the closing of this Offering. The following unaudited pro
forma financial statements give effect to the proposed acquisition, which will
be accounted for under the purchase method of accounting, as adjusted to reflect
the sale of the 3,350,000 shares of Common Stock pursuant to this Offering,
after deducting the underwriting discounts and commissions and estimated
offering expenses payable by the Company, and after application of the estimated
net proceeds.

The unaudited pro forma balance sheet gives effect to the acquisition, as
if the acquisition had occurred as of June 30, 1996 and reflects as a liability
the cash consideration to be paid to the shareholders of BMT. The unaudited pro
forma balance sheet also presents, as supplemental pro forma information, the
effect of the issuance of Common Stock pursuant to this Offering. The unaudited
pro forma statements of operations present pro forma results from operations for
the year ended December 31, 1995 and for the six months ended June 30, 1996, in
each case as if the acquisition and the issuance of Common Stock pursuant to
this Offering had occurred as of the beginning of the respective periods.

The total of the excess of the deemed purchase price over the book value of
the net assets of BMT acquired has been allocated and classified as described in
note (a) of the Notes to Pro Forma Financial Statements.

Unaudited pro forma adjustments are based upon historical information,
preliminary estimates and certain assumptions management deems appropriate. The
unaudited pro forma financial data presented herein is not necessarily
indicative of the results UroQuest would have obtained had such events occurred
at the beginning of such periods, as assumed, or of the future results of
UroQuest. The pro forma financial statements should be read in conjunction with
the other Financial Statements and notes thereto appearing elsewhere in the
Prospectus.

F-2
<PAGE> 71

UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)

PRO FORMA STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)

<TABLE>
<CAPTION>
COMBINED PRO FORMA PRO FORMA
UROQUEST BIVONA COMPANIES ADJUSTMENTS AS ADJUSTED
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales.................... $ -- $14,257,413 $14,257,413 $ -- $14,257,413
Cost of sales................ -- 7,228,308 7,228,308 406,400(d) 7,634,708
----------- ------------ ------------ ------------ ------------
Gross profit............ -- 7,029,105 7,029,105 (406,400) 6,622,705
Operating expenses:
Research and development... 1,106,631 986,265 2,092,896 2,092,896
General and
administrative.......... 397,523 1,653,197 2,050,720 2,050,720
Sales, marketing and
distribution............ 46,262 1,692,881 1,739,143 1,739,143
Amortization of goodwill... -- -- -- 566,800(d) 566,800
----------- ------------ ------------ ------------ ------------
Total operating
expenses......... 1,550,416 4,332,343 5,882,759 566,800 6,449,559
----------- ------------ ------------ ------------ ------------
Operating income (loss)...... (1,550,416) 2,696,762 1,146,346 (973,200) 173,146
Other income (expense):
Interest expense........... (54,809) (315,232) (370,041) (370,041)
Interest income............ 60,688 84 60,772 60,772
Other, net................. 30,790 -- 30,790 30,790
----------- ------------ ------------ ------------ ------------
36,669 (315,148) (278,479) -- (278,479)
Provision for income taxes... -- 950,000 950,000 (950,000)(e) --
----------- ------------ ------------ ------------ ------------
Net earnings
(loss)........... $(1,513,747) $ 1,431,614 $ (82,133) $ (23,200) $ (105,333)
=========== ============ ============ ============ ============
Pro forma net loss per
share...................... $ (0.36) $ (0.01)
=========== ============
Shares used in computing pro
forma net loss per share... 4,192,549 11,471,120
=========== ============
</TABLE>

See accompanying notes to pro forma financial statements.

F-3
<PAGE> 72

UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)

PRO FORMA STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)

<TABLE>
<CAPTION>
PRO FORMA
COMBINED PRO FORMA AS
UROQUEST BIVONA COMPANIES ADJUSTMENTS ADJUSTED
---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Net sales....................... $ -- $7,483,367 $7,483,367 $ -- $7,483,367
Cost of sales................... -- 3,953,455 3,953,455 203,200(d) 4,156,655
---------- ---------- ---------- ---------- ----------
Gross profit............... -- 3,529,912 3,529,912 (203,200) 3,326,712
Operating expenses:
Research and development...... 539,183 530,585 1,069,768 (a) 1,069,768
General and administrative.... 225,016 908,115 1,133,131 1,133,131
Sales, marketing and
distribution............... 45,787 691,609 737,396 737,396
Amortization of goodwill...... -- -- -- 283,400(d) 283,400
---------- ---------- ---------- ---------- ----------
Total operating
expenses............ 809,986 2,130,309 2,940,295 283,400 3,223,695
---------- ---------- ---------- ---------- ----------
Operating income (loss) before
nonrecurring charges.......... (809,986) 1,399,603 589,617 (486,600)(a) 103,017
Other income (expense):
Interest expense.............. (23,400) (136,834) (160,234) (160,234)
Interest income............... 16,552 45 16,597 16,597
---------- ---------- ---------- ---------- ----------
(6,848) (136,789) (143,637) -- (143,637)
Provision for income taxes...... -- 490,000 490,000 (490,000)(e) --
---------- ---------- ---------- ---------- ----------
Net earnings (loss)
before nonrecurring
charges............. $ (816,834) $ 772,814 $ (44,020) $ 3,400 $ (40,620)
========== ========== ========== ========== ==========
Pro forma net loss per share.... $ (0.18) $ (0.00)
========== ==========
Shares used in computing pro
forma net loss per share...... 4,560,519 11,839,090
========== ==========
</TABLE>

See accompanying notes to pro forma financial statements.

F-4
<PAGE> 73

UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)

PRO FORMA BALANCE SHEET

JUNE 30, 1996
(UNAUDITED)

ASSETS

<TABLE>
<CAPTION>
COMBINED PRO FORMA SUPPLEMENTAL AS
UROQUEST BIVONA COMPANIES ADJUSTMENTS PRO FORMA ADJUSTMENTS ADJUSTED
---------- ---------- ---------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash
equivalents............ $ 262,145 $ 6,398 $ 268,543 $ 5,000,000(c) $ 5,268,543 $ 18,093,000(f) $12,971,543
(10,000,000)(f)
(390,000)(f)
Accounts receivable...... -- 2,370,781 2,370,781 2,370,781 2,370,781
Inventories.............. 11,662 2,748,342 2,760,004 2,760,004 2,760,004
Prepaid expenses and
other current assets... 330,254 141,760 472,014 472,014 472,014
Deferred income taxes.... -- 105,000 105,000 105,000 105,000
---------- ---------- ---------- ------------ ----------- ------------ -----------
Total current
assets........... 604,061 5,372,281 5,976,342 5,000,000 10,976,342 7,703,000 18,679,342
---------- ---------- ---------- ------------ ----------- ------------ -----------
Property and equipment,
net...................... 171,312 2,185,083 2,356,395 2,844,503(a) 5,200,898 5,200,898
Patents and trademarks,
net...................... 376,075 30,305 406,380 406,380 406,380
Deposits and other......... -- 34,923 34,923 34,923 34,923
Pro forma goodwill......... -- -- -- 11,810,996(a) 11,027,996 11,027,996
(783,000)(a)
Deferred income taxes...... -- 242,000 242,000 242,000 242,000
---------- ---------- ---------- ------------ ----------- ------------ -----------
Total assets....... $1,151,448 $7,864,592 $9,016,040 $ 18,872,499 $27,888,539 $ 7,703,000 $35,591,539
========== ========== ========== ============ =========== ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......... $ 348,678 $ 416,562 $ 765,240 $ $ 765,240 $ $ 765,240
Accrued expenses......... 113,712 378,671 492,383 492,383 492,383
Notes payable under line
of credit.............. -- 100,000 100,000 100,000 100,000
Secured promissory
notes.................. 390,000 -- 390,000 390,000 (390,000)(f) --
Current portion of
long-term debt......... -- 417,822 417,822 417,822 417,822
Income taxes payable..... -- 71,813 71,813 71,813 71,813
Cash consideration
payable to BMT
shareholders........... -- -- -- 10,000,000(a) 10,000,000 (10,000,000)(f) --
---------- ---------- ---------- ------------ ----------- ------------ -----------
Total current
liabilities...... 852,390 1,384,868 2,237,258 10,000,000 12,237,258 (10,390,000) 1,847,258
---------- ---------- ---------- ------------ ----------- ------------ -----------
Long-term debt............. -- 2,027,223 2,027,223 2,027,223 2,027,223
Shareholders' equity:
Preferred stock.......... 1,253 -- 1,253 (1,253)(b) -- -- --
Voting common stock...... 3,002 796,500 799,502 (791,033)(a,b,c) 8,469 3,350(f) 11,819
Non-voting common
stock.................. 286 -- 286 (286)(b) -- --
Additional paid-in
capital................ 4,296,497 7,800 4,304,297 14,096,272(a,c) 18,400,569 18,089,650(f) 36,490,219
Deferred compensation.... (139,548) -- (139,548) (139,548) (139,548)
Retained earnings
(deficit accumulated
during development
stage)................. (3,862,432) 4,050,521 188,089 (4,050,521)(a) (4,645,432) (4,645,432)
(783,000)(a)
Less common stock in
treasury at cost....... -- (402,320) (402,320) 402,320(a) -- --
---------- ---------- ---------- ------------ ----------- ------------ -----------
Total shareholders'
equity........... 299,058 4,452,501 4,751,559 8,872,499 13,624,058 18,093,000 31,717,058
---------- ---------- ---------- ------------ ----------- ------------ -----------
Total liabilities
and shareholders'
equity........... $1,151,448 $7,864,592 $9,016,040 $ 18,872,499 $27,888,539 $ 7,703,000 $35,591,539
========== ========== ========== ============ =========== ============ ===========
</TABLE>

See accompanying notes to pro forma financial statements.

F-5
<PAGE> 74

UROQUEST MEDICAL CORPORATION

NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)

The adjustments to arrive at the unaudited pro forma financial statements
are as follows:

(a) Recognition of $10 million cash payment and issuance of 2,500,000
shares of common stock to BMT shareholders in exchange for all of BMT's
outstanding common stock. Treasury stock of BMT in the amount of $402,320
was canceled in the transaction. Goodwill in the amount of $11,027,996 was
calculated as follows:

<TABLE>
<S> <C>
Total estimated purchase price ($10 million cash and estimated
market value of equity issued in consideration).............. $25,000,000
Less:
Discount on large, non-registered, restricted stock issuance
to BMT shareholders....................................... (5,892,000)
Net assets acquired.......................................... (4,452,501)
Expensed in-process research and development................. (783,000)
Net fair market value of property, plant and equipment
acquired in excess of book value.......................... (2,844,503)
-----------
Goodwill....................................................... $11,027,996
===========
</TABLE>

Goodwill includes $102,600 assigned to non-compete agreements.

The expensed in-process research and development of $783,000 has not been
considered in the pro forma statement of operations. The nonrecurring charge of
$783,000 would increase the pro forma loss per share by $0.07 for the six months
ended June 30, 1996. In-process research and development of $783,000 will be
expensed in the year ending December 31, 1996.

The acquisition has been accounted for as a purchase.

(b) Conversion of series A, B, C, and D preferred stock and non-voting
common stock into common stock of Uroquest Medical Corporation.

(c) Receipt of $5 million cash in connection with the issuance of a
total of 1,428,571 shares of common stock upon exercise of warrants by
certain of the Company's stockholders.

(d) Amortization of the goodwill recognized in the purchase of BMT as
if the amortization had commenced January 1, 1995. Goodwill will be
amortized over a twenty year period. Non-compete agreements will be
amortized over a five year period. Depreciation of the net fair market
value of property, plant and equipment acquired in excess of book value
over the remaining estimated useful life.

(e) Elimination of BMT's provision for income taxes due to offsets
from UroQuest Medical Corporation's net loss from operations assuming the
transaction had been consummated as of January 1, 1995.

(f) Receipt of the proceeds from issuance of 3,350,000 shares of
common stock (at the offering price of $6.00 per share) less underwriting
discounts and commissions, and estimated offering expenses. Proceeds from
the offering were used to pay the $10 million cash to BMT stockholders as
described in (a) above and to pay off $390,000 in secured promissory notes.

F-6
<PAGE> 75

Listed below is a reconciliation of preferred stock, common stock,
additional paid in capital, retained earnings (deficit accumulated in
development stage) and treasury stock to recognize the transaction described
above:

<TABLE>
<CAPTION>
RETAINED EARNINGS
(DEFICIT
ACCUMULATED
ADDITIONAL DURING
PREFERRED COMMON PAID-IN DEVELOPMENT TREASURY
STOCK STOCK CAPITAL STAGE) STOCK
--------- -------- ---------- ----------------- --------
<S> <C> <C> <C> <C> <C>
Combined Companies............................ $ 1,253 799,788 4,304,297 188,089 (402,320)
Adjustments:
Exercise of 1,428,571 warrants @ $0.001
par....................................... -- 1,428 4,998,572 -- --
Offering of 3,350,000 shares @ $0.001 par... -- 3,350 18,089,650 -- --
Purchase of BMT equity:
Issuance of UroQuest common stock......... -- 2,500 9,105,500 -- --
Elimination of BMT equity in
consolidation........................... -- (796,500) (7,800) (4,050,521) 402,320
Charge for in-process research and
development............................... -- -- (783,000)
Conversion of preferred stock to common..... (1,253) 1,253 -- -- --
------- -------- ---------- ---------- --------
$ -- 11,819 36,490,219 (4,645,432) --
======= ======== ========== ========== ========
</TABLE>

(g) The weighted average shares outstanding used to calculate pro
forma as adjusted loss per share is based on the estimated average number
of shares of common stock outstanding during the period calculated as
follows:

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1995 JUNE 30, 1996
----------------- --------------
<S> <C> <C>
Weighted average shares of UroQuest......... 4,192,549 4,560,519
Shares issued to the stockholders of BMT.... 2,500,000 2,500,000
Shares issued upon exercise of warrants..... 1,428,571 1,428,571
Shares issued in the Offering............... 3,350,000 3,350,000
----------
11,471,120 11,839,090
==========
</TABLE>

Intercompany sales are immaterial and therefore have not been
eliminated on the pro forma financial statements.

On an ongoing basis, management reviews the valuation and amortization
of the excess purchase price to determine possible impairment by comparing
the carrying value to the undiscounted estimated future cash flows of the
related businesses.

F-7
<PAGE> 76

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
UroQuest Medical Corporation:

We have audited the accompanying consolidated balance sheets of UroQuest
Medical Corporation and subsidiary (a development stage company) as of December
31, 1994 and 1995 and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the years in the three year
period ended December 31, 1995, and for the period April 8, 1992 (inception) to
December 31, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of UroQuest
Medical Corporation and subsidiary (a development stage company) as of December
31, 1994 and 1995 and the results of their operations and their cash flows for
each of the years in the three year period ended December 31, 1995, and for the
period April 8, 1992 (inception) to December 31, 1995, in conformity with
generally accepted accounting principles.

KPMG Peat Marwick LLP

Salt Lake City, Utah
March 20, 1996, except as to
Note 10 which is as of
September 27, 1996

F-8
<PAGE> 77

UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
--------------------------- -----------
1994 1995 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 564,097 $ 1,113,594 $ 262,145
Inventories.............................................. -- 9,590 11,662
Prepaid expenses and other current assets................ 2,090 14,311 330,254
----------- ----------- -----------
Total current assets.............................. 566,187 1,137,495 604,061
----------- ----------- -----------
Property and equipment, net (note 2)....................... 67,603 142,321 171,312
Patents and trademarks, net (notes 3 and 7)................ 571,483 441,211 376,075
----------- ----------- -----------
Total assets...................................... $ 1,205,273 $ 1,721,027 $ 1,151,448
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................... $ 84,125 $ 200,416 $ 348,678
Accrued expenses......................................... 54,935 83,485 113,712
Notes payable............................................ 70,000 -- --
Secured promissory notes (note 3)........................ -- 390,000 390,000
Amounts payable to related parties....................... 31,404 -- --
----------- ----------- -----------
Total current liabilities......................... 240,464 673,901 852,390
----------- ----------- -----------
Long-term liabilities:
Secured promissory notes (note 3)........................ 390,000 -- --
Note payable -- related party (note 7)................... 162,188 -- --
----------- ----------- -----------
552,188 -- --
----------- ----------- -----------
Commitments and contingencies (notes 3 and 9)
Stockholders' equity (notes 4 and 10):
Convertible preferred stock, $.001 par value:
Series D: 8,000,000 shares authorized, 628,571 shares
issued and outstanding (liquidation preference
$2,200,000).......................................... -- 629 629
Series A: 316,667 shares authorized, 90,474 shares
issued and outstanding (liquidation preference
$190,000)............................................ 90 90 90
Series B: 955,494 shares authorized; 272,996 shares
issued and outstanding (liquidation preference
$687,956)............................................ 273 273 273
Series C: 1,009,107 shares authorized; 250,569, 260,569
and 260,569 shares issued and outstanding at December
31, 1994 and 1995 and June 30, 1996 respectively
(liquidation preference $912,000).................... 251 261 261
Voting common stock, $.001 par value; 31,000,000 shares
authorized; 2,861,797, 2,947,511 and 3,001,731 shares
issued and outstanding as of December 31, 1994 and
1995 and June 30, 1996, respectively................. 2,862 2,948 3,002
Non-voting common stock, $.001 par value; 1,000,000
shares authorized; 285,714 shares issued and
outstanding.......................................... 286 286 286
Additional paid-in capital............................. 1,940,710 4,088,237 4,296,497
Deferred compensation.................................. -- -- (139,548)
Deficit accumulated during development stage........... (1,531,851) (3,045,598) (3,862,432)
----------- ----------- -----------
Total stockholders' equity........................ 412,621 1,047,126 299,058
----------- ----------- -----------
Total liabilities and stockholders' equity........ $ 1,205,273 $ 1,721,027 $ 1,151,448
=========== =========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-9
<PAGE> 78

UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF OPERATIONS

See accompanying notes to consolidated financial statements.

F-10
<PAGE> 79

UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

PERIOD FROM APRIL 8, 1992 (INCEPTION) TO DECEMBER 31, 1995
AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1996 (UNAUDITED)

<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
SERIES PREFERRED STOCK VOTING NON-VOTING ADDITIONAL DURING TOTAL
------------------------- COMMON COMMON PAID-IN DEFERRED DEVELOPMENT STOCKHOLDERS'
D A B C STOCK STOCK CAPITAL COMPENSATION STAGE EQUITY
---- --- --- --- ------ ---------- ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, April
8, 1992
(inception)... $ -- -- -- -- -- -- -- -- -- --
Issuance of
1,428,571
shares of
Common Stock
for patents
and trademarks
(note 7)...... -- -- -- -- 1,286 143 3,571 -- -- 5,000
Net loss........ -- -- -- -- -- -- -- -- (11,234 ) (11,234)
--
---- --- --- ----- --- --------- -------- ---------- ----------
Balance,
December 31,
1992.......... -- -- -- -- 1,286 143 3,571 -- (11,234 ) (6,234)
--
---- --- --- ----- --- --------- -------- ---------- ----------
Issuance of
90,474 shares
of Series A
Preferred
Stock for
cash, net of
issuance costs
of $2,784..... -- 90 -- -- -- -- 187,127 -- -- 187,217
Issuance of
285,714 shares
of Common
Stock for
cash.......... -- -- -- -- 286 -- 199,714 -- -- 200,000
Net loss........ -- -- -- -- -- -- -- -- (315,423 ) (315,423)
--
---- --- --- ----- --- --------- -------- ---------- ----------
Balance,
December 31,
1993.......... -- 90 -- -- 1,571 143 390,413 -- (326,657 ) 65,560
--
---- --- --- ----- --- --------- -------- ---------- ----------
Issuance of
1,428,571
shares of
Common Stock
for
acquisition of
subsidiary
(note 7)...... -- -- -- -- 1,286 143 3,571 -- -- 5,000
Issuance of 143
shares of
Common Stock
for cash...... -- -- -- -- -- -- 100 -- -- 100
Issuance of
272,996 shares
of Series B
Preferred
Stock for
cash, net of
issuance costs
of $3,542..... -- -- 273 -- -- -- 684,141 -- -- 684,414
Issuance of
4,511 shares
of Common
Stock for
consulting
services...... -- -- -- -- 5 -- 11,362 -- -- 11,367
Issuance of
189,429 shares
of Series C
Preferred
Stock for
cash, net of
issuance costs
of $25,626.... -- -- -- 190 -- -- 637,184 -- -- 637,374
Issuance of
61,140 shares
of Series C
Preferred
Stock, in
exchange for
notes
payable....... -- -- -- 61 -- -- 213,939 -- -- 214,000
Net loss........ -- -- -- -- -- -- -- -- (1,205,194 ) (1,205,194)
--
---- --- --- ----- --- --------- -------- ---------- ----------
Balance,
December 31,
1994.......... -- 90 273 251 2,862 286 1,940,710 -- (1,531,851 ) 412,621
--
---- --- --- ----- --- --------- -------- ---------- ----------
Issuance of
628,571 shares
of Series D
Preferred
Stock for
cash, net of
issuance costs
of $87,048.... 629 -- -- -- -- -- 2,112,323 -- -- 2,112,952
Issuance of
10,000 shares
of Series C
Preferred
Stock, in
exchange for
notes
payable....... -- -- -- 10 -- -- 34,990 -- -- 35,000
Issuance of
85,714 shares
of Common
Stock for
cash, upon
exercise of
stock
options....... -- -- -- -- 86 -- 214 -- -- 300
Net loss........ -- -- -- -- -- -- -- -- (1,513,747 ) (1,513,747)
--
---- --- --- ----- --- --------- -------- ---------- ----------
Balance,
December 31,
1995.......... $629 90 273 261 2,948 286 4,088,237 -- (3,045,598 ) 1,047,126
--
---- --- --- ----- --- --------- -------- ---------- ----------
Issuance of
54,220 shares
of Common
Stock for
cash, upon
exercise of
stock options
(unaudited)... -- -- -- -- 54 -- 37,900 -- -- 37,954
Deferred
compensation
related to
grant of stock
options
(unaudited)... -- -- -- -- -- -- 170,360 (170,360) -- --
Amortization for
deferred
compensation
(unaudited)... -- -- -- -- -- -- -- 30,812 -- 30,812
Net loss
(unaudited)... -- -- -- -- -- -- -- -- (816,834 ) (816,834)
--
---- --- --- ----- --- --------- -------- ---------- ----------
Balance, June
30, 1996
(unaudited)... $629 90 273 261 3,002 286 4,296,497 (139,548) (3,862,432 ) 299,058
==== == === === ===== === ========= ======== ========== ==========
</TABLE>

See accompanying notes to consolidated financial statements.

F-11
<PAGE> 80

UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
CUMULATIVE CUMULATIVE
FROM FROM
APRIL 8, 1992 SIX MONTHS ENDED APRIL 8, 1992
YEAR ENDED DECEMBER 31, (INCEPTION) TO JUNE 30, (INCEPTION) TO
------------------------------------- DECEMBER 31, ----------------------- JUNE 30,
1993 1994 1995 1995 1995 1996 1996
--------- ----------- ----------- -------------- ---------- ---------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss...................... $(315,423) $(1,205,194) $(1,513,747) $ (3,045,598) $ (626,340) $ (816,834) $ (3,862,432)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and
amortization................ 5,269 58,244 139,022 206,373 67,932 115,994 322,367
Issuance of Common Stock in
exchange for consulting
services.................... -- 11,367 -- 11,367 -- -- 11,367
Provisions for loss on notes
receivable.................. -- 235,008 614 235,622 614 -- 235,622
Changes in operating assets
and liabilities:
Inventories................. -- -- (9,590) (9,590) -- (2,072) (11,662)
Prepaid expenses and other
current assets............ (1,590) -- (12,221) (14,311) -- (315,943) (330,254)
Accounts payable............ 58,117 26,008 116,291 200,416 187,907 148,262 348,678
Amounts payable to related
parties................... 59,104 (66,500) (31,404) -- (31,404) -- --
Accrued expenses............ -- 54,935 28,550 83,485 5,430 30,227 113,712
--------- ----------- ----------- ----------- --------- ---------- -----------
Net cash used in operating
activities.............. (194,523) (886,132) (1,282,485) (2,332,236) (395,861) (840,366) (3,172,602)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of property and
equipment................. (5,272) (159,819) (83,468) (279,463) (5,810) (49,037) (328,500)
Purchases of patents and
trademarks................ -- (400,000) -- (400,000) -- -- (400,000)
Cash
advances -- affiliates.... -- (92,290) (614) (92,904) (614) -- (92,904)
--------- ----------- ----------- ----------- --------- ---------- -----------
Net cash used in investing
activities.............. (5,272) (652,109) (84,082) (772,367) (6,424) (49,037) (821,404)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of:
Stock..................... 387,217 1,321,888 2,113,252 3,822,357 2,113,252 37,954 3,860,311
Notes..................... -- 674,000 -- 674,000 -- -- 674,000
Repayment of Notes.......... -- (80,972) (197,188) (278,160) (104,155) -- (278,160)
--------- ----------- ----------- ----------- --------- ---------- -----------
Net cash provided by (used
in) financing
activities.............. 387,217 1,914,916 1,916,064 4,218,197 2,009,097 37,954 4,256,151
--------- ----------- ----------- ----------- --------- ---------- -----------
Net increase in cash and cash
equivalents................. 187,422 376,675 549,497 -- 1,606,812 (851,449) 262,145
Cash and cash equivalents at
beginning of period......... -- 187,422 564,097 1,113,594 564,097 1,113,594 --
--------- ----------- ----------- ----------- --------- ---------- -----------
Cash and cash equivalents at
end of period............... $ 187,422 $ 564,097 $ 1,113,594 $ 1,113,594 $2,170,909 $ 262,145 $ 262,145
========= =========== =========== =========== ========= ========== ===========
Supplemental disclosures of
cash flow information:
Cash paid for interest...... $ -- $ 20,899 $ 63,849 $ 84,748 $ 27,393 $ 11,700 $ 96,448
Supplemental disclosure of
non-cash investing and
financing activities:
Conversion of notes payable
to preferred stock........ -- 214,000 35,000 249,000 35,000 -- 249,000
Issuance of note payable,
net of discount, for
patents and trademarks.... -- 243,160 -- 243,160 -- -- 243,160
Common stock issued for
patents and trademarks.... -- -- -- 5,000 -- -- 5,000
Common stock issued for
common stock of
subsidiary................ -- 5,000 -- 5,000 -- -- 5,000
Notes received in exchange
for patents and
trademarks................ -- 30,000 -- 30,000 -- -- 30,000
Note received in exchange
for fixed assets.......... -- 112,718 -- 112,718 -- -- 112,718
Increase in additional
paid-in capital as a
result of recording
deferred compensation..... -- -- -- -- -- 170,360 170,360
</TABLE>

See accompanying notes to consolidated financial statements.

F-12
<PAGE> 81

UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

The Company was incorporated in the state of Florida on April 8, 1992, and
commenced operations for the purpose of designing, developing, and marketing
disposable urological catheters and other urological devices. The Company is
considered a development stage company under the guidelines of Statement of
Financial Accounting Standards No. 7. The Company has had limited operating
revenues as its activities have focused on product development and raising
capital. The accumulated deficit from inception through December 31, 1995, was
$3,045,598.

Principles of Consolidation

The consolidated financial statements include the assets and liabilities of
UroQuest's wholly owned subsidiary -- UroCath Corporation. All significant
intercompany transactions have been eliminated in consolidation.

Cash and Cash Equivalents

Cash equivalents of $564,097 and $1,084,375 at December 31, 1994 and 1995,
respectively, consist of liquid money market funds. For the purposes of the
statements of cash flows, the Company considers all investments with original
maturities of three months or less to be cash equivalents.

Fair Value Disclosure

At December 31, 1994 and 1995 the book value of the Company's financial
instruments approximates fair value.

Inventories

Inventories are comprised of finished goods that are stated at the lower of
cost or market, using the average cost method.

Property and Equipment

Property and equipment is recorded at cost. Depreciation is calculated on a
straight-line basis over the estimated useful lives of the assets, which range
from 3 to 10 years.

Patents and trademarks

Patents and trademarks have been recorded at historical cost. Patents and
trademarks are amortized using the straight line method over their remaining
lives, not to exceed five years. Patents include male and female urological
catheters and a urinary diagnostic test system, both acquired from the founder
of the Company. Accumulated amortization as of December 31, 1995 was $181,949.
Management evaluates the recoverability of these net assets on a periodic basis
based on the projected cash flows from estimated future sales.

Income Taxes

The Company accounts for income taxes using the asset and liability method.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and

F-13
<PAGE> 82

UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

liabilities and their respective tax bases, operating loss, and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.

Discounts

Discounts recorded on non-interest bearing notes payable are amortized
using the effective interest method over the life of the related note.

Estimates

The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Pro Forma Net Loss Per Share

Pro forma net loss per share amounts are based on the weighted average
number of common shares and common share equivalents (if dilutive) resulting
from options and warrants outstanding during the periods, after giving
retroactive effect to the common stock reverse stock split and the conversion of
preferred shares into common shares at their respective issuance dates as
discussed in notes 4 and 10.

Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 83, common stock and common stock options issued for consideration below the
initial public offering price of $6.00 per share during the twelve-month period
prior to the date of the filing of the Registration Statement, even when
antidilutive, have been included in the calculation of common share equivalents,
using the treasury stock method, as if they were outstanding for all periods
presented.

Interim Financial Information

The accompanying interim financial statements for the six month periods
ended June 30, 1995 and 1996 are unaudited, but in the opinion of management
reflect all adjustments necessary for a fair presentation of the results of such
periods. The results of operations for any interim period are not necessarily
indicative of results for the respective full year.

Research and Development Costs

Research and development costs are expensed as incurred.

2. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1995
--------- ---------
<S> <C> <C>
Manufacturing tooling...................................... 45,174 109,370
Office furniture and equipment............................. 38,102 57,374
------- -------
Total............................................ 83,276 166,744
Less accumulated depreciation.............................. (15,673) (24,423)
------- -------
Property and equipment, net................................ 67,603 142,321
======= =======
</TABLE>

F-14
<PAGE> 83

UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. SECURED PROMISSORY NOTES

In December 1994, the Company issued 12% Secured Promissory Notes
("Notes"), totaling $390,000 all of which are to stockholders of the Company.
The Notes are secured by an interest in certain patents and are due December 31,
1996. Interest is payable quarterly and the Notes are callable by the Company at
any time. Note holders receive .2857 of a warrant (14,250 and 20,935 at December
31, 1995 and June 30, 1996, respectively) to purchase Series C Preferred Shares
at $3.50 per share for each dollar of interest earned and are entitled to
receive a 5% royalty on sales of UroQuest's products utilizing certain
technology through December 31, 1996.

4. CONVERTIBLE PREFERRED STOCK

During the period from June 15, 1993 to November 15, 1993 the Company
issued 90,474 shares of Series A Convertible Preferred Stock (Series A Preferred
Shares) for $2.10 per share. During the period from February 12, 1994 to April
15, 1994, the Company issued 272,996 shares of Series B Convertible Preferred
Stock (Series B Preferred Shares) for $2.52 per share. During the period from
October 7, 1994 through June 15, 1995 the Company issued 260,569 shares of
Series C Convertible Preferred Stock (Series C Preferred Shares) for $3.50 per
share. On June 15, 1995 the Company issued 628,571 shares of Series D
Convertible Preferred Stock (Series D Preferred Shares) for $3.50 per share and
1,428,571 warrants to purchase Series D Preferred Shares for $3.50 per share.

Preferred Shares are convertible into common shares at the option of the
holder. Each Preferred Share shall automatically convert into one common share
if the Company obtains a firm underwriting commitment for a public offering. The
conversion rate will be adjusted for stock dividends, stock splits, and other
dilutive events. The Preferred stockholders are entitled to one vote for each
common share equivalent. Shares automatically convert in the event of sale of
all or substantially all of the assets or stock of the Company.

Preferred stockholders are entitled to a liquidation preference over common
shareholders of $2.10, $2.52, $3.50, and $3.50 per share, for Series A, B, C and
D, respectively, together with any declared but unpaid dividends. Series D
Preferred Shares have liquidation preference over all other classes of stock. If
any assets remain after payment of the liquidation preferences to the holders of
the Preferred Stock, the holders of the Preferred Stock will share in
distribution of the remaining assets with the holders of Common Stock on a fully
diluted, as-converted basis.

5. STOCK OPTIONS AND WARRANTS

The Company has a stock option plan (the "1994 Stock Option Plan") whereby
it has reserved 1,428,571 shares of its common stock for issuance to Company
employees, directors and consultants. Options granted under this Plan may be
either incentive stock options or non-qualified stock options. The exercise
price of these options shall not be less than the fair market value at the date
of the grant. Options under this Plan must be granted by March 31, 2004. Options
granted must be exercised within ten years of the grant date. At December 31,
1995 outstanding stock options and warrants to purchase shares of the Company's
stock were as follows:

F-15
<PAGE> 84

UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

<TABLE>
<CAPTION>
EXPIRATION NUMBER AGGREGATE
DATES OF SHARES EXERCISE PRICE
------------------- --------- --------------
<S> <C> <C> <C>
June 6, 2004 to
Voting Common September 26,
Stock Options............. 2005............... 1,115,606 $ 751,071
Series D Convertible
Preferred Stock
Warrants.................. June 15, 1997 1,428,571 5,000,000
Series C Convertible
Preferred Stock
Warrants.................. December 31, 1999 14,250 49,876
</TABLE>

No options were granted, exercised or canceled in 1993. Information
relating to stock options granted, exercised, and canceled for the years ended
December 31, 1994 and 1995 is as follows:

<TABLE>
<CAPTION>
SHARES PRICE RANGE
---------- -------------
<S> <C> <C>
Balance, December 31, 1993............. -- --
Granted.............................. 1,232,528 $ .0035 - .70
--------- ---------
Balance, December 31, 1994............. 1,232,528 .0035 - .70
--------- ---------
Granted.............................. 47,143 .70
Canceled............................. (78,351) .70
Exercised............................ (85,714) .0035
--------- ---------
Balance, December 31, 1995............. 1,115,606 $ .0035 - .70
--------- ---------
Granted.............................. 5,716 1.75
Canceled............................. (11,428) .70
Exercised............................ (54,220) .70
--------- ---------
Balance, June 30, 1996 (unaudited)..... 1,055,674 $.0035 - 1.75
========= =========
</TABLE>

Of the 1,115,606 options outstanding, 377,043 are exercisable at December
31, 1995 at a weighted average price of $.63 per share.

For financial statement presentation purposes, the Company has recorded as
deferred compensation expense the excess of the deemed value of the common stock
at the date of grant over the exercise price. The compensation expense will be
amortized ratably over the vesting period of the options and warrants and will
aggregate a maximum of $170,360. Amortization expense for the six months ended
June 30, 1996 was $30,812.

F-16
<PAGE> 85

UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. INCOME TAXES

There was no Federal income tax expense in 1993, 1994, and 1995 due to net
operating losses. The difference between the expected tax benefit and actual tax
benefit is primarily attributable to the effect of these net operating losses
being offset by an increase in the Company's valuation allowance.

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at December 31, 1993, 1994, and 1995 are
presented below:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1993 1994 1995
--------- -------- ----------
<S> <C> <C> <C>
Start up and organization costs....... $ 76,940 268,534 434,065
Net operating loss carryforwards...... 44,903 215,189 614,285
Allowance for bad debts............... -- 87,657 87,657
--------- -------- ----------
Total....................... 121,843 571,380 1,136,007
Less valuation allowance.............. (121,843) (571,380) (1,136,007)
--------- -------- ----------
Net deferred tax assets............... $ -- -- --
========= ======== ==========
</TABLE>

The net change in the total valuation allowance for the years ended
December 31, 1993, 1994, and 1995 was an increase of approximately $117,653,
$449,537 and $564,627, respectively. Subsequently recognized tax benefits
relating to the valuation allowance for deferred tax assets will be recognized
as an income tax benefit to be reported in the statement of operations.

At December 31, 1995 the Company had total tax net operating losses of
approximately $1,600,000 that can be carried forward to reduce federal income
taxes. If not utilized, the tax loss carryforwards expire beginning in 2007.

Under the rules of the Tax Reform Act of 1986, the Company has undergone a
greater that 50% change of ownership. Consequently, a certain amount of the
Company's net operating loss carryforward available to offset future taxable
income in any one year may be limited. The maximum amount of carryforwards
available in a given year is limited to the product of the Company's value on
the date of ownership change and the federal long-term tax-exempt rate, plus any
limited carryforwards not utilized in prior years.

7. RELATED PARTY TRANSACTIONS

Upon organization of the Company, patents and trademarks were acquired from
the founder of the Company for which 1,285,714 shares of voting common stock and
142,857 shares of non-voting common stock were issued as consideration and
nominally valued at $5,000.

In January 1994 the Company issued 1,285,714 shares of voting common stock
and 142,857 shares of non-voting common stock to the founder of the Company in
consideration for all of the outstanding equity of UroCath Corporation. The
acquisition of UroCath was accounted for as a combining of entities under common
control. Accordingly, the assets were recorded at their historical cost. Due to
the immateriality of the assets acquired and no significant previous operations,
comparative prior years' financial statements have not been retroactively
restated.

During 1994 the Company acquired patents and trademarks totaling $250,000
from Excalibur Engineering Corporation for which UroQuest issued a $250,000
non-interest bearing note. Excalibur is controlled by the founder of the
Company. As the note was non-interest bearing, the Company recorded the note net
of a $6,840 discount calculated at 8% over the expected term of the note. At
December 31,

F-17
<PAGE> 86

UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1994 the unamortized portion of the discount was $4,017. As of December 31,
1995, the note was paid in full and the discount completely amortized.

In 1994, nonaffiliated corporations were formed by certain stockholders of
the Company. Cash and other non-core business assets of the Company totaling
$235,008 were transferred to those corporations in exchange for 8% promissory
notes. The notes are payable on demand. In 1994, a valuation allowance was
established to account for possible non-collection of the notes.

8. ACCOUNTING STANDARDS ISSUED NOT YET ADOPTED

In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, Accounting for Stock Based
Compensation (FASB 123). The Company is required to adopt the provisions of this
statement in 1996. This statement encourages all entities to adopt a fair value
based method of accounting for employee stock options or similar equity
instruments. However, it also allows an entity to continue to measure
compensation cost for those plans using the intrinsic-value method of accounting
prescribed by APB opinion No. 25, Accounting for Stock Issued to Employees (APB
25). Entities electing to remain with the accounting in APB 25 must make pro
forma disclosures of net income and earnings per share as if the fair value
based method of accounting defined in this statement had been applied. It is
currently anticipated that the Company will continue to account for employee
stock options or similar equity instruments in accordance with APB 25 and
provide the disclosures required by FASB 123.

In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to be Disposed of ("FASB 121"). The
Company is required to adopt the provisions of this statement for years
beginning after December 15, 1995. This statement requires that long-lived
assets and certain identifiable intangibles to be disposed of be reported at the
lower of carrying amount or fair value less cost to sell. The Company will adopt
FASB 121 during 1996; however, the adoption of FASB 121 is not expected to have
a material effect on the Company.

9. LEASE OBLIGATIONS AND COMMITMENTS

The Company leases office space and certain equipment under operating
leases that expire over a period of three to five years. Minimum future
obligations under noncancelable operating leases as of December 31, 1995 are as
follows:

<TABLE>
<CAPTION>
YEAR AMOUNT
-------------------------------------------------- --------
<S> <C>
1996.............................................. $ 43,402
1997.............................................. 43,402
1998.............................................. 41,273
1999.............................................. 37,017
2000.............................................. 24,678
--------
Total............................................. $189,772
========
</TABLE>

Total rent expense for operating leases in 1993, 1994, and 1995 was
approximately $10,600, $23,300 and $36,200, respectively.

F-18
<PAGE> 87

UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. SUBSEQUENT EVENTS AND PRO FORMA CAPITAL AMOUNTS

The following events occurred subsequent to December 31, 1995:

The Board of Directors approved a 1-for-3.5 reverse stock split of the
Company's common stock. The number of common shares and per share amounts
presented in the accompanying financial statements have been restated for
the effects of this reverse split.

The Board of Directors authorized the filing of a registration
statement with the Securities and Exchange Commission permitting the
Company to sell shares of its common stock to the public.

The Company entered into a definitive agreement and plan of merger to
acquire all of the issued and outstanding common stock of BMT, Inc. which
is to occur concurrently with completion of the contemplated offering of
shares of the Company's common stock to the public. In the acquisition,
shareholders of BMT, Inc. will receive, in the aggregate, a combination of
$10 million cash and 2,500,000 newly issued shares of common stock. The
acquisition will be accounted for under the purchase method of accounting.

A significant stockholder of the Company provided a commitment to
finance the Company, if necessary, through August 1997.

Approximately $200,000 principal amount of the 8% promissory notes
described in Note 7 was converted into Common Stock of a corporation owned
by certain stockholders of the Company. After this conversion, the Company
held less than 10% of the outstanding stock of the corporation.

In September 1996 the Company issued 10% demand promissory notes
totalling $500,000. The Company expects to repay the notes with the
proceeds of the proposed initial public offering.

The Board of Directors approved a reincorporation of the Company in
the state of Delaware. In conjunction with that reincorporation and the
Company's proposed sale of shares of its common stock to the public, the
existing non-voting common stock and preferred stock of the Company will
convert into voting common stock.

F-19
<PAGE> 88

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors
BMT, Inc.

We have audited the accompanying consolidated balance sheets of BMT, Inc.
and its wholly-owned subsidiary, Bivona, Inc. as of December 31, 1994 and 1995,
and the related consolidated statements of earnings, stockholders' equity, and
cash flows for the three years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of BMT, Inc. and
its wholly-owned subsidiary, Bivona, Inc. as of December 31, 1994 and 1995, and
the consolidated results of their operations and their cash flows for the years
then ended, in conformity with generally accepted accounting principles.

GRANT THORNTON LLP

Chicago, Illinois
January 19, 1996, except for Note H
as to which the date is June 27, 1996

F-20
<PAGE> 89

BMT, INC. AND ITS WHOLLY-OWNED SUBSIDIARY, BIVONA, INC.

CONSOLIDATED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1995
---------- ---------- JUNE 30,
1996
----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets
Cash........................................................ $ 21,526 $ 47,083 $ 6,398
Accounts receivable, net of allowance for doubtful accounts
of $100,000, $50,000 and $50,000 for 1994, 1995, and
1996, respectively....................................... 1,766,677 2,731,709 2,370,781
Inventories................................................. 2,459,821 2,658,918 2,748,342
Prepaid expenses and other.................................. 112,492 44,319 141,760
Deferred income taxes....................................... 138,000 105,000 105,000
---------- ---------- ----------
Total current assets................................ 4,498,516 5,587,029 5,372,281
Property, plant and equipment
Land and building........................................... 941,399 1,019,544 1,065,537
Machinery and equipment..................................... 1,177,002 1,583,613 1,785,580
Office furniture and equipment.............................. 371,727 455,953 470,843
---------- ---------- ----------
2,490,128 3,059,110 3,321,960
Less accumulated depreciation............................... 583,184 925,172 1,136,877
---------- ---------- ----------
Net property, plant and equipment................... 1,906,944 2,133,938 2,185,083
Other assets
Patents, organization costs and trademarks, net of
accumulated amortization of $36,260, $54,575, and $63,695
for 1994, 1995, and 1996, respectively................... 42,740 39,425 30,305
Deposits and other.......................................... -- 123,437 34,923
Deferred income taxes....................................... 504,000 307,000 242,000
---------- ---------- ----------
546,740 469,862 307,228
---------- ---------- ----------
Total assets........................................ $6,952,200 $8,190,829 $7,864,592
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable under line of credit.......................... $ 10,000 $ 610,000 $ 100,000
Current portion of long-term debt........................... 487,019 500,951 417,822
Accounts payable............................................ 440,823 369,469 416,562
Accrued expenses............................................ 319,980 389,305 378,671
Income taxes payable........................................ 212,000 252,813 71,813
---------- ---------- ----------
Total current liabilities........................... 1,469,822 2,122,538 1,384,868
Long-term debt................................................ 2,831,985 2,385,884 2,027,223
Commitments................................................... -- -- --
Stockholders' equity
Common stock, $1 par value; 1,000,000 shares authorized;
issued 796,500 shares.................................... 796,500 796,500 796,500
Additional paid-in capital.................................. 7,800 7,800 7,800
Retained earnings........................................... 1,846,093 3,277,707 4,050,521
---------- ---------- ----------
2,650,393 4,082,007 4,854,821
Less common stock in treasury at cost, 120,000 and 120,500
shares for 1995 and 1996, respectively................... -- (399,600) (402,320)
---------- ---------- ----------
Total stockholders' equity.......................... 2,650,393 3,682,407 4,452,501
---------- ---------- ----------
Total liabilities and stockholders' equity.......... $6,952,200 $8,190,829 $7,864,592
========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these statements.

F-21
<PAGE> 90

BMT, INC. AND ITS WHOLLY-OWNED SUBSIDIARY, BIVONA, INC.

CONSOLIDATED STATEMENTS OF EARNINGS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales.................... $11,239,155 $11,728,409 $14,257,413 $6,706,256 $7,483,367
Cost of sales................ 6,351,651 6,668,026 7,228,308 3,469,929 3,953,455
----------- ----------- ----------- ---------- ----------
Gross profit....... 4,887,504 5,060,383 7,029,105 3,236,327 3,529,912
Operating expenses
General and
administrative.......... 1,080,971 1,151,485 1,653,197 862,251 908,115
Marketing and
distribution............ 1,581,302 1,607,404 1,692,881 862,851 691,609
Research and development... 531,395 586,319 986,265 460,778 530,585
----------- ----------- ----------- ---------- ----------
3,193,668 3,345,208 4,332,343 2,185,880 2,130,309
----------- ----------- ----------- ---------- ----------
Earnings from
operations....... 1,693,836 1,715,175 2,696,762 1,050,447 1,399,603
Other income (expense)
Interest income............ 740 69 84 18,072 45
Interest expense........... (344,586) (289,797) (315,232) (169,454) (136,834)
----------- ----------- ----------- ---------- ----------
(343,846) (289,728) (315,148) (151,382) (136,789)
----------- ----------- ----------- ---------- ----------
Earnings before
income taxes..... 1,349,990 1,425,447 2,381,614 899,065 1,262,814
Income taxes................. 540,000 572,500 950,000 352,110 490,000
----------- ----------- ----------- ---------- ----------
Net earnings....... $ 809,990 $ 852,947 $ 1,431,614 $ 546,955 $ 772,814
=========== =========== =========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these statements.

F-22
<PAGE> 91

BMT, INC. AND ITS WHOLLY-OWNED SUBSIDIARY, BIVONA, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

THREE YEARS ENDED DECEMBER 31, 1995 AND SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)

<TABLE>
<CAPTION>
ADDITIONAL COMMON TOTAL
COMMON PAID-IN RETAINED STOCK IN STOCKHOLDERS'
STOCK CAPITAL EARNINGS TREASURY EQUITY
-------- ---------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
Balance at January 1,
1993...................... $796,500 $ -- $ 183,156 $ -- $ 979,656
Net earnings................ -- -- 809,990 -- 809,990
-------- ------ ---------- --------- ----------
Balance at December 31,
1993...................... 796,500 -- 993,146 -- 1,789,646
Purchase of 13,000 common
shares.................... -- -- -- (16,250) (16,250)
Sale of 13,000 common shares
held in treasury.......... -- 7,800 -- 16,250 24,050
Net earnings................ -- -- 852,947 -- 852,947
-------- ------ ---------- --------- ----------
Balance at December 31,
1994...................... 796,500 7,800 1,846,093 -- 2,650,393
Purchase of 122,500 common
shares.................... -- -- -- (407,925) (407,925)
Sale of 2,500 common shares
held in treasury.......... -- -- -- 8,325 8,325
Net earnings................ -- -- 1,431,614 -- 1,431,614
-------- ------ ---------- --------- ----------
Balance at December 31,
1995...................... 796,500 7,800 3,277,707 (399,600) 3,682,407
Purchase of 500 common
shares (unaudited)........ -- -- -- (2,720) (2,720)
Net earnings (unaudited).... -- -- 772,814 -- 772,814
-------- ------ ---------- --------- ----------
Balance at June 30, 1996
(unaudited)............... $796,500 $7,800 $4,050,521 $(402,320) $ 4,452,501
======== ====== ========== ========= ==========
</TABLE>

The accompanying notes are an integral part of this statement.

F-23
<PAGE> 92

BMT, INC. AND ITS WHOLLY-OWNED SUBSIDIARY, BIVONA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------------------- ----------------------
1993 1994 1995 1995 1996
--------- ----------- ---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings.............................. $ 809,990 $ 852,947 $1,431,614 $ 546,955 $ 772,814
Adjustments to reconcile net earnings to
cash flows provided by operating
activities
Reduction of bad debt provision........ -- -- (50,000) -- --
Depreciation and amortization.......... 245,704 288,830 360,303 173,122 220,825
Deferred income taxes.................. 211,000 188,000 230,000 90,000 65,000
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable........................ (500,474) 388,520 (915,032) (246,605) 360,928
Increase in inventories.............. (123,098) (649,573) (199,097) (122,389) (89,424)
(Increase) decrease in prepaid
expenses and other................ (19,401) (74,999) 68,173 (56,243) (8,927)
Increase in accounts payable......... (43,456) 289,798 (71,354) (264,594) 47,093
Increase (decrease) in accrued
expenses.......................... 45,127 (48,133) 69,325 15,280 (10,634)
Increase in income taxes payable..... (48,000) 227,000 40,813 (175,890) (181,000)
--------- ----------- ---------- --------- ---------
Total adjustments................. (232,598) 609,443 (466,869) (587,319) 403,861
--------- ----------- ---------- --------- ---------
Net cash provided by operating
activities...................... 577,392 1,462,390 964,745 (40,364) 1,176,675
Cash flows used in investing activities:
Capital expenditures...................... (271,174) (350,998) (568,982) (424,195) (262,850)
Machinery deposits and patents............ -- -- (138,437) -- --
--------- ----------- ---------- --------- ---------
Net cash used in investing
activities...................... (271,174) (350,998) (707,419) (424,195) (262,850)
Cash flows used in financing activities:
Principal payments on debt................ (358,638) (396,480) (432,169) (230,809) (441,790)
Net borrowings (payments) under line of
credit................................. 130,000 (890,000) 600,000 790,000 (510,000)
Purchase of common shares................. -- (14,850) (407,925) -- (2,720)
Sale of common shares..................... -- 37,050 8,325 -- --
--------- ----------- ---------- --------- ---------
Net cash used in financing
activities...................... (228,638) (1,264,280) (231,769) 559,191 (954,510)
--------- ----------- ---------- --------- ---------
Net increase (decrease) in cash... 77,580 (152,888) 25,557 94,632 (40,685)
Cash, beginning of period................... 96,834 174,414 21,526 21,526 47,083
--------- ----------- ---------- --------- ---------
Cash, end of period......................... $ 174,414 $ 21,526 $ 47,083 $ 116,158 $ 6,398
========= =========== ========== ========= =========
Supplemental cash flow information:
Cash paid during the period for:
Interest............................... $ 344,586 $ 289,797 $ 315,232 $ 112,732 $ 95,095
Income taxes........................... 363,185 214,756 679,187 280,000 606,000
Non-cash financing activities:
Refinancing of letter of credit balance
to term note......................... -- 430,000 -- -- --
Finance of purchase of common shares... -- 14,400 -- -- --
</TABLE>

The accompanying notes are an integral part of these statements.

F-24
<PAGE> 93

BMT, INC. AND ITS WHOLLY-OWNED SUBSIDIARY, BIVONA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1993, 1994 AND 1995 AND JUNE 30, 1996 (UNAUDITED)

NOTE A -- SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization

BMT, Inc. (the Company) was formed as an Indiana corporation on September
30, 1992. On October 2, 1992, the Company acquired 100% of the capital stock of
Bivona, Inc. (Bivona). The acquisition was accounted for as a purchase
transaction. The consolidated balance sheets reflect the formation of the
Company and the acquisition, including the related financing, of Bivona. In
1995, the Company acquired manufacturing machinery and equipment, patents and
inventory of a manufacturer of emergency tracheostomy and cricothyrotomy devices
for $325,000. The acquisition was not material.

Description of Business

Bivona designs, develops, manufactures and markets a line of proprietary
silicone medical device products as well as provides engineering design,
development and manufacturing services for silicone products on an OEM basis for
other medical device companies. The majority of Bivona's sales are conducted in
the United States, Western Europe and Japan.

Inventories

Inventories are stated at the lower of cost (first-in, first-out method) or
market.

Inventories consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1995
---------- ---------- JUNE 30,
1996
-----------
(UNAUDITED)
<S> <C> <C> <C>
Finished goods....................... $ 577,835 $ 637,357 $ 707,866
Work-in-process...................... 1,369,873 1,384,383 1,314,679
Raw materials and supplies........... 512,113 637,178 725,797
---------- ---------- ----------
$2,459,821 $2,658,918 $ 2,748,342
========== ========== ==========
</TABLE>

Property, Plant and Equipment and Related Depreciation

Property, plant and equipment are recorded at cost, including amounts
allocated to such assets obtained from the acquisition of Bivona in 1992 in
accordance with Accounting Principles Board Opinion No. 16. Depreciation is
provided for in amounts sufficient to relate the cost of depreciable assets to
operations over their estimated service lives ranging from 5 to 15 years using
accelerated and straight-line methods.

Patents and Trademarks

The costs of patents and trademarks are capitalized and amortized to
operations over their estimated useful lives or statutory lives, whichever is
shorter. Amortization is computed on the straight-line method.

Revenue Recognition

Revenue is recognized by the Company upon the actual shipment of products.

F-25
<PAGE> 94

BMT, INC. AND ITS WHOLLY-OWNED SUBSIDIARY, BIVONA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1993, 1994 AND 1995 AND JUNE 30, 1996 (UNAUDITED)

Research and Development Costs

The Company expenses all research and development costs as incurred.

Income Taxes

The Company and Bivona file a consolidated income tax return. Deferred
income taxes are recognized for differences between the assigned values and tax
bases of assets and liabilities resulting from the Bivona acquisition in
accordance with Statement of Financial Accounting Standards No. 109. Deferred
tax assets and liabilities have been established for temporary differences
between the financial reporting basis and the tax basis of the consolidated
company's assets and liabilities based upon currently enacted tax rates that are
expected to be in effect when such amounts are realized or settled.

Management Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Fair Value of Financial Instruments

The Company's financial instruments include cash equivalents, accounts
receivable, accounts payable, notes payable and long-term obligations. The
carrying amounts of cash equivalents, accounts receivable, and accounts payable
approximate fair value because of the short-term nature of these instruments.
The carrying value of long-term obligations is based on quoted prices at the
reporting date for those instruments and approximates fair values. The fair
value of notes payable is estimated based on rates offered for instruments with
similar characteristics and does not materially differ from their carrying
value.

Impact of Adoption of Recently Issued Accounting Standards

In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," which requires that carrying values of long-lived
assets and certain identifiable intangible assets be evaluated based on the
future (undiscounted and without interest charges) cash flows expected to be
realized from the use of the asset and its eventual disposition. If the sum of
the expected future cash flows from an asset is less than the carrying value, an
impairment loss must be recognized. SFAS No. 121 is effective for fiscal years
commencing after December 15, 1995. The impact of adopting SFAS No. 121 upon the
Company is not expected to be material to the Company's financial position or
results of operations.

Interim Financial Information (Unaudited)

The unaudited interim financial statements have been prepared in conformity
with generally accepted accounting principles and include all adjustments, all
of which were normal and recurring in nature, which, in the opinion of
management, are necessary for a fair presentation of the interim periods
presented. Results of operations for the six months ended June 30, 1996 are not
necessarily indicative of the results to be expected for the full year.

F-26
<PAGE> 95

BMT, INC. AND ITS WHOLLY-OWNED SUBSIDIARY, BIVONA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1993, 1994 AND 1995 AND JUNE 30, 1996 (UNAUDITED)

NOTE B -- NOTES PAYABLE AND LONG-TERM DEBT

Notes payable and long-term debt consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1995
---------- ----------
<S> <C> <C>
Notes payable under bank line of credit agreement:
Maximum borrowings are the lesser of $1,200,000
or 75% of eligible accounts receivable, plus
50% of eligible inventory as defined.
Interest at the bank's prime rate plus .5%
(at prime rate beginning January 1, 1996) is
payable monthly. The prime rate was 8.5% at
December 31, 1995. The line of credit
agreement is payable on demand and is
collateralized by substantially all of the
assets of the Company........................ $ 10,000 $ 610,000
========== ==========
Long-term debt:
Bank term note payable to bank monthly, with
interest at the bank's prime rate (8.5% at
December 31, 1995) plus .5% based upon a
seven year amortization. However, additional
principal payments are required quarterly
based on 75% of excess cash flow as defined.
The note matures in October of 1999 and is
collateralized by substantially all of the
Company's assets............................. $1,723,040 $1,443,574
Mortgage note payable with monthly principal and
interest payable at the bank's prime rate
(8.5% at December 31, 1995) plus 1.5% (at
8.5% from January 1, 1996 through September
30, 1996 and prime plus 0.5% thereafter). The
note matures in October of 2007 and is
collateralized by the factory land and
building..................................... 1,276,062 1,228,187
Note payable to Lake County, Indiana Economic
Development Commission. The note bears
interest at a rate of 5% per annum and
matures in October of 1997 and is
collateralized by the factory land and
building..................................... 306,702 215,074
Note payable relating to a stock repurchase,
with interest payable monthly, at the prime
rate. The note was paid in full during fiscal
year 1995.................................... 13,200 --
---------- ----------
3,319,004 2,886,835
Less current maturities......................... 487,019 500,951
---------- ----------
$2,831,985 $2,385,884
========== ==========
</TABLE>

The prime rate was 8.25% at June 30, 1996.

Based upon the borrowing rates currently available to the Company for bank
loans with similar terms and average maturities, the fair value of long-term
debt at December 31, 1995 is approximately $2,378,000.

F-27
<PAGE> 96

BMT, INC. AND ITS WHOLLY-OWNED SUBSIDIARY, BIVONA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1993, 1994 AND 1995 AND JUNE 30, 1996 (UNAUDITED)

The loan agreements contain certain restrictive covenants and provide for
the maintenance of certain financial requirements. The Company has satisfied all
covenants and requirements at December 31, 1995.

The two principal shareholders of the Company are currently personal
guarantors of all basic debt.

Long-term debt matures as follows:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
--------------------------------------------------------
<S> <C>
1996.................................................... $ 500,951
1997.................................................... 544,273
1998.................................................... 475,621
1999.................................................... 401,732
2000.................................................... 84,619
2001 and thereafter..................................... 879,639
----------
$2,886,835
==========
</TABLE>

NOTE C -- INCOME TAXES

The components of income tax expense consist of:

<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal................................ $232,600 $282,000 $560,000
State.................................. 96,400 102,500 160,000
-------- -------- --------
329,000 384,500 720,000
Deferred
Federal................................ 195,000 178,000 212,000
State.................................. 16,000 10,000 18,000
-------- -------- --------
211,000 188,000 230,000
-------- -------- --------
$540,000 $572,500 $950,000
======== ======== ========
</TABLE>

F-28
<PAGE> 97

BMT, INC. AND ITS WHOLLY-OWNED SUBSIDIARY, BIVONA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1993, 1994 AND 1995 AND JUNE 30, 1996 (UNAUDITED)

The tax effects of existing temporary differences that give rise to
significant portions of deferred tax assets (liabilities) are as follows:

<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
DEFERRED TAX ASSETS
Acquired net operating loss
carryforwards......................... $ 626,000 $ 500,000
Research and development credits......... 80,000 80,000
Allowance for doubtful accounts.......... 42,000 21,000
Inventory capitalization and
allowances............................ 75,500 29,000
Other.................................... 20,500 55,000
Valuation allowance...................... (80,000) (80,000)
-------- --------
$ 764,000 $ 605,000
======== ========
DEFERRED TAX LIABILITIES
Depreciation............................. $(122,000) $(182,000)
Other.................................... -- (11,000)
-------- --------
$(122,000) $(193,000)
======== ========
</TABLE>

Net current and long-term deferred tax assets are reflected in the
financial statements as:

<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Current deferred tax asset................... $138,000 $105,000
Long-term deferred tax asset................. 504,000 307,000
-------- --------
$642,000 $412,000
======== ========
</TABLE>

Net operating loss carryforwards can be utilized to reduce Federal income
taxes payable each year at the lesser of approximately $371,000 or Federal
taxable income before net operating loss carryforwards. Total net operating loss
carryforwards available at December 31, 1995 are approximately $1,470,000
expiring as follows: $1,256,000 in 2003 and $214,000 in 2004. In addition to the
net operating loss carryforwards, the Company acquired research and development
credit carryforwards of approximately $80,000 that can be utilized after the net
operating loss carryforwards are utilized. A valuation reserve has been
established for these credits.

NOTE D -- STOCK REPURCHASE AGREEMENT

Each of the shareholders has entered into an agreement that provides the
Company, followed by other shareholders, with the right of first refusal on the
purchase of stock from a shareholder who desires to sell such stock. In
addition, the Company has agreed to acquire the stock of each shareholder upon
his or her death. The purchase price is the book value of the stock as of the
last day of the preceding year. Payment may be made 20% in cash, with the
balance paid in sixty monthly installments with interest at the prime rate at
the option of the Company. Book value per share of $5.44 and $3.33 at December
31, 1995 and 1994, respectively, is based upon the number of issued and
outstanding shares of stock at the end of the year adjusted for common shares
held in treasury.

NOTE E -- LEASE COMMITMENTS

The Company leases warehouse space under an operating lease expiring on
December 15, 1998. Future minimum rental commitments on this lease are
approximately $60,000 per year over the three year period. The lease termination
agreement provides the Company with the right to terminate the

F-29
<PAGE> 98

BMT, INC. AND ITS WHOLLY-OWNED SUBSIDIARY, BIVONA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1993, 1994 AND 1995 AND JUNE 30, 1996 (UNAUDITED)

lease any month prior to lease termination date upon paying a break lease fee
equal to three times the then current monthly rent amount.

Total rent expense approximated $55,800 and $55,800, and $92,900 for the
years ended December 31, 1993, 1994, and 1995, respectively.

NOTE F -- EMPLOYEE BENEFIT PLAN

The Company has established a defined contribution employee benefit plan
(the Plan) pursuant to Section 401(k) of the Internal Revenue Code. Employees
who have completed one year of service, and have attained the age of twenty-one,
are eligible to participate in the Plan. Participants may elect to make salary
deferral contributions of up to 15% of their compensation. The Company will
match such contributions in an amount up to 4% of each participant's
compensation. The Company made matching contributions of approximately $87,200,
$92,700 and $95,000 for the years ended December 31, 1993, 1994, and 1995,
respectively.

NOTE G -- MAJOR CUSTOMERS AND EXPORT SALES

Net sales to one customer amounted to 18%, 23% and 22% of Bivona's total
net sales for the years ended December 31, 1993, 1994 and 1995, respectively.
Outstanding receivables from this customer at December 31, 1993, 1994 and 1995
bear a similar relationship to total accounts receivable.

Export sales by major geographic area are as follows:

<TABLE>
<CAPTION>
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Western Europe....................... $1,279,000 $1,361,000 $1,831,000
Japan................................ 200,000 283,000 371,000
Other................................ 190,000 334,000 376,000
---------- ---------- ----------
Total................................ $1,669,000 $1,978,000 $2,578,000
========== ========== ==========
</TABLE>

NOTE H -- SUBSEQUENT EVENT

On June 27, 1996 the Company entered into a definitive agreement to be
acquired by UroQuest Medical Corporation ("UroQuest") for aggregate
consideration consisting of a combination of $10 million cash and 2,500,000
newly issued shares of UroQuest common stock. The transaction is contingent upon
the completion of an initial public offering by UroQuest.

F-30
<PAGE> 99
MALE ON-COMMAND(R) CATHETER
FEMALE ON-COMMAND(R) CATHETER

[This is a diagram with two photographs of the Male and Female On Command
Catheters. Included with the photographs is the following language: The
On-Command Catheter is an endourethral (inside the urethra) catheter
incorporating a proprietary anchoring system and a patient controlled,
magnetically activated valve used to regulate urine flow.]

The Male On-Command(R) Catheter is inserted non-surgically through the urethra
in a simple five-minute procedure. Two balloons are inflated, one in the bladder
to seal the bladder neck and one in the urethra on the downstream side of the
prostrate gland to anchor the device. The device resides completely inside the
urethra with no exposed components, thereby reducing the risk of infection and
allowing unrestricted freedom of movement. The device is designed to remain in
place for up to 30 days.

The Female On-Command(R) Catheter substitutes the urethral anchoring balloon
found in the male device with a small rounded external cap securing the device
in place beneath the labial folds of the vagina. The female device is designed
to remain in place for 15 to 30 days making it more convenient than many other
products requiring multiple changes per day.

The On-Command Catheter is an investigational device and has not been cleared
or approved by the FDA for commercial sale in the United States. The process of
obtaining FDA clearance or approval may be lengthy, and there can be no
assurance that the On-Command Catheter will be cleared or approved by the FDA.

BMT ACQUISITION IN CONNECTION WITH THIS OFFERING

[These are photographs of the inside of BMT manufacturing facility showing
medical products being packaged and assembled.]

In June 1996, the Company entered into a definitive agreement to acquire BMT,
BMT develops, manufactures and markets a line of proprietary silicone medical
device products as well as provides engineering design, development and
manufacturing services for silicone products on an OEM basis for other medical
device companies. BMT has been a contract manufacturer for the Company since
June 1994.

<PAGE> 100

- ------------------------------------------------------------
- ------------------------------------------------------------

No dealer, salesperson or other person has been authorized to give any
information or to make any representation other than those contained in this
Prospectus in connection with the offer contained herein, and if given or made,
such information or representation must not be relied upon as having been
authorized by the Company or any Underwriter. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy, shares of
Common Stock in any jurisdiction to any person to whom it is not lawful to make
any such offer or solicitation in such jurisdiction or in which the person
making such offer or solicitation is not qualified to do so. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create an implication that there has been no change in the
affairs of the Company since the date hereof or that the information contained
herein is correct as of any time subsequent to its date.

-----------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................... 3
Risk Factors............................... 6
The Company................................ 16
Acquisition of BMT......................... 16
Use of Proceeds............................ 17
Dividend Policy............................ 17
Capitalization............................. 18
Dilution................................... 19
Selected Financial Data.................... 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 23
Business................................... 29
Management................................. 53
Certain Transactions....................... 59
Principal Stockholders..................... 61
Description of Capital Stock............... 62
Shares Eligible for Future Sale............ 64
Underwriting............................... 66
Legal Matters.............................. 67
Experts.................................... 67
Additional Information..................... 68
Index to Financial Statements.............. F-1
</TABLE>

-----------------------------

Until November 18, 1996 (25 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.

- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------

LOGO

-----------------------------

3,350,000 SHARES

COMMON STOCK

PROSPECTUS

October 24, 1996

-----------------------------

DILLON, READ & CO. INC.
PRUDENTIAL SECURITIES INCORPORATED

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